On March 8, the price of gold rings reached a new historic high, exceeding 69 million dong/tael, while SJC gold also maintained its high range with a buying price – selling price of 79.8 – 81.8 million dong/tael.
Surging demand for gold rings
This year, the gold market has seen unexpected developments as the price of gold and gold demand have not decreased after the God of Wealth Day (the 10th day of the lunar year). On the contrary, the domestic gold price continues to rise, with each peak higher than the previous one.
Notably, on March 8, the demand for buying gold by the people continued to increase, focusing on gold rings. At the head office of Saigon Jewelry Company (SJC) in District 3, Ho Chi Minh City, although there was no rush to buy gold, there was still a lively atmosphere. Most inquiries were about buying plain gold rings and selling SJC gold bars.
According to gold trading companies, the recent sharp increase in the domestic gold price is due to the influence of the current rally in this precious metal on the world market. At the end of March 8 (Vietnam time), the world gold was trading at $2,161/ounce (equivalent to 64.8 million dong/tael).
Ms. Han Thi Binh, a gold shop owner in the Gò Vấp market area (Ho Chi Minh City), said that on March 8, many customers came to make transactions. Many of them were regular customers who, seeing the continuous increase in gold prices and the low savings interest rates, decided to buy gold for investment. On the other hand, many people took advantage of the continuously increasing gold prices to sell and make a profit.
At some stores of the SJC, PNJ, and DOJI brands in Ho Chi Minh City, sales staff said that the purchase of gold jewelry has increased during the International Women’s Day holiday (March 8) to be used as gifts. There are also cases where people expect gold prices to continue to rise in line with the global trend, so they buy a considerable amount for investment.
The continuous increase in the domestic gold price partly affects the exchange rate and may further reduce the attractiveness of the bank capital mobilization channel. Photo: HOÀNG TRIỀU
Negligible impact on the exchange rate
When the price of SJC gold fluctuates around 81.5 – 82 million dong/tael, Mr. Tran Huu Dang, CEO of ASEAN Precious Metals and Gemstones Company (AJC), believes that some investors tend to take profits from this type of gold. Meanwhile, with the current gold ring price being about 1.5 – 2 million dong/tael higher than the world gold price, people are buying more gold rings than selling. If this situation continues to spread, it will stimulate an increase in the import of small-scale gold. “At that time, the USD exchange rate in the free market will increase sharply, putting pressure on the foreign exchange market, which will have a negative impact on the VND/USD exchange rate and will not be beneficial to the macro economy,” Mr. Dang commented.
Concerning the risk of smuggled gold flooding into the country through border trade, leaders of some companies said that unofficially imported gold raw materials will not be able to produce SJC gold bars. Therefore, smuggled gold can only be supplied to small retailers. On the other hand, functional agencies are always increasing inspections, so even if there is imported smuggled gold, it will only be a small amount, and the outflow of foreign currency will not be significant, having a minimal impact on the exchange rate.
According to Mr. Le Tri Thong, CEO of Phu Nhuan Jewelry Company (PNJ), in the context of companies not being licensed to import gold, the demand for buying gold rings is higher while the amount sold is lower than usual, causing a shortage of raw materials for production. “PNJ is currently prioritizing raw materials for the production of jewelry, which is the company’s main business area, instead of prioritizing the production of gold rings, so we are experiencing a shortage of gold rings compared to the increasing demand from customers,” Mr. Thong explained.
According to Mr. Le Tri Thong, the current size of the gold market is no longer as large as before, and the domestic gold market is not interconnected with the world market, so it does not require foreign currency for gold imports. These factors support the exchange rate not being greatly affected by the high domestic gold price.
However, according to economic experts, the high price of gold while the savings interest rate is low may pose certain risks to the economy. Because part of the money in the people will flow into the gold speculation channel instead of depositing it in the bank to serve production and business activities.
No comprehensive solution
Assoc. Prof. Dr. Nguyen Huu Huan, University of Economics Ho Chi Minh City, has observed that the recent fluctuations in the gold market are affecting interest rates and exchange rates. Specifically, the rising gold price stimulates the demand for buying and holding gold, including a portion of the money from savings deposits. If this trend continues, in theory, it may affect interest rates.
In addition, a high price difference between domestic and international gold prices over a long period will stimulate the demand for accumulating USD to smuggle gold through border trade. In practice, the free USD price has increased significantly recently, with many times the free USD price being about 1,000 dong/USD higher than the interbank USD price.
Assoc. Prof. Dr. Nguyen Huu Huan suggests that the State Bank of Vietnam needs to take early action to amend Decree No. 24/2012 on gold market management. This will avoid sudden shocks to the market and ensure the interests of businesses and gold buyers and sellers.
Mr. Nguyen Minh Tuan, the founder of TOPI – a personal financial investment and management platform, believes that the gold market is a complex market with many participants. Gold transactions are mainly conducted in cash and do not have a trading system like stocks. Therefore, it requires a comprehensive solution to manage this market, which is very difficult.
World gold price continues to rise
The world gold price reached its highest level ever on March 8, trading around $2,168/ounce.
The gold price has remained high this week thanks to expectations of the US Federal Reserve’s (Fed) monetary policy easing in the near future. Fed Chairman Jerome Powell stated on March 7 that the time to cut interest rates is “getting closer.” According to CNBC, Powell said that the Fed is waiting for clear signals that inflation will decrease sustainably to the target level of 2% before taking action. According to CME Group’s FedWatch tool, traders’ expectations of a Fed rate cut in June have increased to 74%, up from 63% in the survey on February 29.
Carsten Fritsch, an analyst at Commerzbank (Germany), expressed increasing expectations of a Fed rate cut, especially after the announcement of weak economic data in the US. In addition, the upcoming adjustment in the stock market has contributed to the increased demand for alternative assets, such as gold.
Joseph Cavatoni, a strategist at the World Gold Council, believes that investors’ expectations of a Fed rate cut have driven the increase in the price of gold. Cavatoni predicts that the gold purchases of central banks will continue to be strong.
According to Reuters, in physical gold markets, the expected price increase is likely to reduce consumption during the wedding season in India. Meanwhile, China – the world’s leading gold buyer – may see a surge in demand for gold as a safe haven. James Steel, a precious metals analyst at HSBC, believes that geopolitical risk is also a key driver of higher gold prices. According to this expert, there are very few types of assets that investors see as safe havens, and gold is one of them.
Xuan Mai
