Gold auction is just a temporary solution

As planned, the State Bank of Vietnam (SBV) will organize gold auctions to increase supply to the market, aiming to reduce the difference in domestic and international gold bar prices. However, Dr. Dinh The Hien, Director of the Institute of Informatics and Applied Economics, said that this is only a temporary solution.

Dr. Dinh The Hien, Director of the Institute of Informatics and Applied Economics

Since Decree 24/2012/ND-CP (Decree 24) was issued, the Vietnamese gold market has been “a market all by itself”, sometimes up to 20 million VND/tael higher than the world price. Today, the State Bank of Vietnam organized a gold auction to increase supply to the market. In your opinion, can this solution reduce the gap between domestic and international gold prices?

Gold auctions are just a temporary solution to increase the supply to the market. Of course, the winning bid price will be lower than the current market price, but I think it will not be significantly lower than the market price because the person offering the highest price will win the bid. Therefore, gold auctions are just a temporary solution to quickly supplement the supply of gold to the market, not a fundamental solution to solve the unreasonable gold price difference as directed by the Prime Minister.

The question is, why before 2012 (before Decree 24 was issued), the gold market did not experience this situation, but after Decree 24 was issued, this situation became more and more serious? The reason is that before 2012, a certain amount of gold was regularly supplied to the market every year, so the difference between domestic and international gold prices was only 1-2 million VND/tael. Since Decree 24 was issued, the market has not been supplemented with new supply, while demand has increased every year. Demand increased while supply was not, so the difference in gold prices has become increasingly unreasonable.

So what is the fundamental solution to narrow the gold price gap, sir?

Investing and hoarding gold is a legitimate need of the people. I think that it is necessary to conduct comprehensive research and calculate how much gold people need each year. To do so, it is necessary to calculate how much added value Vietnam has each year and how much of that added value can be accumulated in the form of foreign currency or gold. From there, it is possible to calculate the reasonable amount of gold imported into Vietnam.

This is also the basis for the State Bank to grant quotas to gold import enterprises to increase supply. By regularly supplementing supply like this, the gap between supply and demand and the gap between gold prices will gradually decrease.

People are increasing their gold holdings, the State Bank of Vietnam is increasing the supply of gold to the market. Will this lead to the risk of gold-ization of the economy as some people worry, sir?

Goldification only happened 30 years ago, now goldification has no basis. When people buy houses, buy land, buy cars… does anyone calculate in gold?

As for the people's need to buy gold for storage, in my opinion, it is very normal, there is nothing to worry about. A country can accumulate assets from added value, which can be accumulated in land, bank deposits, gold, foreign currency... Our country has allowed people to hold gold, foreign currency, land.

In fact, I think that for the economy, accumulating gold is better than accumulating land. The reason is that accumulating land often does not create added value for the country. Increasing land prices even pose a danger to the economy (increased land prices lead to increased land rents, making it difficult for industrial zones to attract foreign investors, etc.). Meanwhile, gold has high liquidity and can be converted into foreign currency at any time.

Although accumulating assets is a legitimate need of the people, if people keep pouring money into gold or land without putting it into production and business, will the economy also be at a disadvantage?

We see that the difference between domestic gold price and converted international gold price has been pushed to the highest level in the past 3 years (currently the difference is more than 400 USD/tael) during the period of real estate market recession, so people are chasing gold. Increasing demand without increasing supply will lead to a high price difference.

If we are determined to stop the bleeding of foreign currency at this time, we will return to a planned economy, based on voluntarism, and in the end we will not be able to stabilize the gold market. Without “controlled connection” with the world gold market, the domestic gold market will be distorted.

To prevent people from chasing gold, the most important thing is to maintain the value of the domestic currency. If people are worried about the devaluation of the dong, they will rush into land and gold. If people see that the dong is guaranteed and inflation is low, they will gradually deposit money in banks. In other words, if the Government does a good job of ensuring the value of the dong, the money flowing into gold and land will gradually die down, and gold will have a hard time making waves.

Fortunately, in recent years, the Government has maintained macroeconomic stability, controlled inflation, stabilized the Vietnamese Dong, real estate prices have decreased and gold will gradually stabilize if we allow imports for connectivity.

The exchange rate is heating up in the context of the increasingly complicated world situation, the US Federal Reserve (Fed) did not lower interest rates as soon as predicted. If gold imports are allowed, will the exchange rate be affected, sir?

With the current gold price difference, who dares to affirm that there is no gold smuggling? If gold is smuggled, is it possible to use Vietnamese currency? The higher the difference, the more smuggling, and USD will continue to flow into the black market. Therefore, if the gold price difference is not brought back to a reasonable level, not only will the gold market be in chaos, but USD will continue to bleed.

Currently, in addition to imports, we need to mobilize foreign currency to pay off national debt and serve people's needs (studying abroad, traveling abroad, etc.). Just looking at the trade balance is not enough. To have abundant foreign currency, we need to accelerate FDI disbursement. In 2024, FDI disbursement did not decrease, but did not increase as expected. We need to do better in this work to ensure foreign currency supply and protect the exchange rate.

However, I think the exchange rate from now until the end of the year is not too worrying.

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