Gold market reforms paramount to stability

Last week, the State Bank of Vietnam (SBV) requested the Ministry of Finance (MoF) to enforce strict compliance among gold trading organisations, especially those dealing in gold bullion, with the use of electronic invoicing in transactions. The SBV will mandate severe penalties for businesses that fail to adhere to this regulation.

Additionally, the SBV has asked the MoF to continue providing information on incidents of gold smuggling and illegal transportation across borders so that it can timely access market data and develop effective gold market management strategies. The MoF is urged to assist the SBV in the customs procedures for the import of gold intended for auction purposes.

A representative from the SBV noted, “We are finalising preparations for a gold bullion auction aimed at increasing market supply. This marks the first time in 11 years that the SBV has organised such an auction.”

Currently, about 15 entities are qualified to participate in the gold bullion auction, involving SJC gold bars.

Economic expert Dr. Nguyen Tri Hieu shared with VIR his concerns about the recent volatility in gold markets, saying that the recent surge in gold prices has led to unpredictable market sessions.

“The geopolitical tensions in the Middle East are prompting increased gold purchases by traders, businesses, and central banks, propelling global gold prices to sometimes exceed $2,400 per ounce, which impacts domestic prices as well,” Hieu said. “Moreover, a surge in domestic demand for gold is being fuelled by dwindling returns on traditional investment avenues such as bank deposits, and sluggish performance in real estate and stock markets.”

He also highlighted the speculative nature of the current market dynamics, noting that the domestic premium on gold transactions is high, and forthcoming regulatory changes aimed at increasing the supply of SJC gold bars could potentially depress prices.

“Given the current feverish state of the market, investors should diversify their portfolios. Speculative gold trading is also exceedingly risky, especially in such a volatile market. It’s also unwise to finance gold investments through borrowing, given the high price levels,” he said.

At a recent investors’ day seminar hosted by Dragon Capital, investment director Le Anh Tuan advised against trying to time the market, suggesting a more systematic investment approach.

“When the market dips by 10 per cent, it presents a buying opportunity, whereas a 10 per cent increase from the year’s end should prompt a reduction in stock holdings. This approach of buying more during significant market dips and reducing during rallies can significantly outperform traditional bank deposits,” Tuan said.

The advice reflects a broader strategy that balances the volatisity of stocks with the stability and potential long-term gains from diverse asset classes like gold, Tuan added.

Dao Le Trang Anh, lecturer, RMIT Recent increases in Vietnam’s domestic gold prices reflect global economic uncertainties and domestic conditions. Notably, events like the Russia-Ukraine conflict, the US elections, and the Israel-Gaza conflict have spiked global gold prices, enhancing its status as a safe-haven asset. Domestic drivers include heightened demand from Chinese private investors facing a sluggish real estate sector and anticipated US Federal Reserve rate cuts. Further, currency devaluation, notably the rise in the USD/VND exchange rate to its highest since November 2023, has pushed up local gold prices, given that gold is typically priced in USD. A supply-demand imbalance in Vietnam, driven by limited imports and high demand for SJC gold as a risk hedge, exacerbates this trend. A government directive issued in December aimed to align domestic gold prices with international rates, which could stabilise prices if Decree No.24/2012/ND-CP is amended to end the monopoly on gold bullion. Despite potential global market volatilities projected by JPMorgan to raise gold prices, amendments to Decree 24 could significantly influence domestic pricing. The investment climate also shows potential in other sectors; the stock market offers growth amidst low interest rates and governmental fiscal initiatives, though it carries increased risks due to global uncertainties. The real estate sector presents mixed signals, with thriving apartment markets but overall stagnation, demanding cautious investment. Ultimately, decisions should align with individual financial circumstances, goals, and risk tolerance, emphasising diversified portfolios to mitigate risks and optimise returns.