Le Hoai An

Why does gold react so sensitively to Fed policy? Where exactly is the transmission channel?

Gold is a non-income asset. Its relative value is determined by the opportunity cost of holding it, best proxied by the US Treasury real yield. When real yields fall, the opportunity cost declines and gold looks more attractive as a store of purchasing power. When real yields rise, the incentive to hold gold weakens.

There are three core variables in the transmission mechanism. First is the level of real yields across the curve, particularly at longer maturities that shape global funding costs. Second is the strength of the US dollar, the currency of account for gold; a stronger dollar makes gold more expensive in dollar terms and vice versa. Third is global risk appetite. In periods of geopolitical uncertainty, safe-haven demand can rise even without major policy shifts. Over the longer run, however, the path of gold tends to converge to what real yields and the dollar imply.

Importantly, markets react not only to the level of real yields but also to the speed of change. A rapid upside surprise in real yields often coincides with a stronger dollar, creating a dual headwind for gold. Conversely, a sharp drop in real yields can trigger a swift rally before the market resets to a new equilibrium.

The Fed has just cut rates by 25 basis points. What scenarios should we expect for gold, and what are the investment implications?

After the first cut of a new cycle, the market parses two layers of signals. The first is the fact of the 25-bp reduction. The second is the guidance: how fast and under what conditions the Fed is willing to cut further. From this we can frame three common scenarios.

Base case:a 25-bp cut with neutral, data-dependent guidance.

Under this configuration, gold typically holds a firm base because investors had already priced in a lower-rate regime. Yet, short-term whipsaws are common around data releases such as inflation and labour prints. The medium-term direction is set by how real yields and the dollar evolve in the sessions following the meeting.

Dovish-leaning case:a 25-bp cut while visibly opening the door to additional reductions.

If subsequent communications or data strengthen the prospect of further cuts, real yields can drift lower and the dollar soften. That backdrop is conducive to a breakout in gold, with prior consolidation zones flipping into support.

Cautious case:a 25-bp cut but with inflation-control emphasis and a very slow cadence ahead.

If the bar for more easing is kept high, real yields may stabilise or tick up, prompting a technical pullback in gold. The metal would then re-anchor around more durable drivers, such as continued central bank net purchases and safe haven demand amid uncertainty.

Why has Vietnam’s domestic gold price at times diverged so widely from the global price? How effective have recent stabilisation steps been?

The gap stems primarily from structural features of the domestic market: limited physical gold supply, a relatively thin market, elevated transaction costs, exchange-rate swings, and defensive investor psychology.

During prolonged global upswings, if legal supply is not replenished in time, the local premium can overshoot what fundamentals would suggest.

Recent stabilisation efforts have followed two tracks. Near term, authorities have increased targeted supply via large institutions and controlled auctions, alongside active policy communication to cool speculative expectations. The immediate effect has narrower bid-ask spreads, a slower widening of the premium, and the dampening of short-term speculative loops. These tools, however, are cyclical; without structural reform their durability is limited.

Longer term, the focus must be on market structure: expanding legal supply channels, standardising the production-logistics-distribution chain, and promoting transparent competition.

As market depth improves, bid-ask spreads compress naturally. Coordination with exchange rate and interest rate policy is also essential to avoid simultaneous shocks that amplify incentives to hold physical gold.

What is a sustainable mechanism to narrow the price gap, limit gold hoarding, and still preserve macro stability?

The strategic objective is to align domestic price dynamics with the global pricing mechanism. Once the market responds more consistently to international drivers, the premium narrows with less administrative intervention, and domestic inflation expectations are less likely to be skewed by speculative waves.

As such, I recommend four pillars.

Pillar 1- Financialise household gold demand:

Develop regulated gold certificates and exchange-traded funds as substitutes for physical hoarding. This gives households transparent channels with lower storage and transaction costs, strengthens supervisory visibility over supply–demand, and reduces pressure on foreign-reserve-intensive physical imports. It also redirects part of the capital towards liquid financial instruments, mitigating bottlenecks in the physical chain.

Pillar 2- Expand legal supply and standardise distribution:

This requires transparent import or refining pathways, uniform quality-assurance standards, and robust custody and logistics. As operational risks and frictions decline, spreads naturally tighten and the scope for arbitrage along the chain diminishes.

Pillar 3- Coordinate with macro policy:

Large-scale keeping of gold as a means of reserve to hedge inflation can drain bank deposits precisely when the economy needs lower rates to support growth, thereby pressuring system liquidity. The gold policy toolkit must therefore be coherent with monetary, credit, and FX objectives. Market management should remain supply–demand oriented rather than turning the regulator into a buyer, seller, or stockpiler, which would introduce valuation risk and policy conflicts.

Pillar 4- Policy communication and expectation anchoring:

Clear, data-based guidance and a published roadmap for financialisation and distribution standards help suppress speculative motives centred on the premium. When market participants internalise that domestic pricing will converge towards global signals, momentum-chasing behaviour fades and capital reallocates to assets better aligned with investors’ risk and duration preferences.

In Vietnam, the core challenge is market structure and distribution mechanics. Short-term measures to cool supply–demand imbalances are necessary, but a lasting solution requires financialising household gold demand, broadening legal supply, standardising the distribution chain, and coordinating with macro policy. With both layers operating in tandem, the market becomes more transparent, converges towards global price formation, reduces the social cost of inflation-hedging of gold, and supports macroeconomic stability.