Effective implementation of monetary policies and market management is important to reap the benefits as well as minimize the negative impacts of gold price fluctuations on the economy.
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| Dr. Nguyen Si Dung shares his perspective on the effects of high gold prices on the economy. (Source: National Assembly Deputies) |
Gold prices in Vietnam in May 2024 increased sharply, at times surpassing the 90 million VND/tael mark.
Specifically, on May 15, 2024, the price of SJC gold bars increased sharply and reached 90.2 million VND/tael before decreasing slightly afterwards. This price is about 16.7 million VND/tael higher than the world gold price.
High gold prices can affect economies in a variety of ways, depending on the role gold plays in a country's economy and how investors and consumers react.
Here are some of the major effects of high gold prices on the economy.
The first is that it increases production costs and has an impact on inflation. Rising gold prices can increase costs for industries that use gold, such as jewelry and technology. This can lead to higher prices for final products, contributing to inflation.
Rising gold prices are also often a sign of inflation concerns. When gold rises, it reflects a depreciation of the currency and can lead to higher inflation as consumers and businesses push up prices to compensate for higher costs.
The second is increased investment demand for gold and capital movements. Gold is often considered a safe asset during times of economic or political instability.
As the price of gold increases, it will attract more investors who want to protect their assets against market risks. As investors shift capital from risky assets to gold, this can reduce investment in other areas such as stocks, real estate and businesses, affecting overall economic growth.
Third is the impact on imports and exports and foreign exchange reserves. Vietnam is one of the major gold consumers, so high gold prices can increase the cost of gold imports. This can affect the balance of payments if gold imports increase significantly. When gold prices are high, the central bank's gold reserves can increase in value, contributing to an increase in foreign exchange reserves. However, if gold is imported in large quantities, it can put pressure on foreign exchange reserves.
Fourth, it increases consumer spending and impacts personal savings and investment. High gold prices can reduce consumer purchasing power because of increased costs of jewelry and gold-related products. This can lead to reduced consumption in other sectors, affecting economic growth. When gold prices increase, people tend to hoard more gold instead of saving or investing in other channels, which can reduce the amount of capital circulating in the economy.
In fact, the above mentioned influences have both positive and negative sides.
On the positive side, gold is often seen as a safe haven asset during times of economic or political uncertainty. When gold prices rise, it can attract more investors looking for protection against risk, helping to stabilize market sentiment and reduce financial panic.
Central banks buying gold to increase foreign exchange reserves can help stabilize national economies and increase market confidence in the country's financial strength.
High gold prices can boost profits for gold mining companies and related industries, thereby creating jobs and boosting economic growth.
On the negative side, high gold prices can lead to inflation as the value of the domestic currency falls and the cost of imported goods increases. This is especially important for countries that rely heavily on imports.
High gold prices can encourage speculation, increase market volatility and create asset bubbles. This could lead to financial instability when the bubbles burst.
As people and investors rush to buy gold, capital can be withdrawn from other sectors such as manufacturing, technology and services, causing a shortage of investment capital for other important sectors of the economy.
With such multidimensional impacts on gold prices, what should the policy response be?
First of all, the State Bank needs to have appropriate monetary policies to control inflation and stabilize the exchange rate when gold prices fluctuate. Adjusting interest rates and managing foreign exchange reserves are important measures.
Second, it is necessary to adjust regulations on gold imports to ensure stable supply and reduce the price gap between domestic and international markets. This can help reduce pressure on the exchange rate and stabilize domestic gold prices.
Third, it is necessary to strengthen supervision and control of gold speculation and smuggling activities to prevent market manipulation and ensure transparency and stability of the gold market.
Ultimately, high gold prices can be beneficial in terms of wealth preservation and market sentiment stabilization, but they can also cause inflation and market instability if not managed well. Effective monetary policy and market management are important to reap the benefits and minimize the negative impacts of gold price volatility on the economy.
Source: https://baoquocte.vn/ts-nguyen-si-dung-gia-vang-cao-anh-huong-den-nen-kinh-te-theo-nhieu-cach-272750.html
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