What to do to "rein in an unruly horse"?

A combined approach is needed in managing the gold market.

At the recent ADB press conference on "Economic Outlook for Vietnam", Mr. Nguyen Ba Hung, chief economist of the Asian Development Bank (ADB), said that the general trend of the world gold market has been fluctuating recently, because gold in the world is a risk management tool and the recent gold use by central banks around the world reflects fluctuations due to geopolitical movements. The domestic gold market fluctuates mainly due to supply and demand, but the psychological factor of the market is also quite unique.

Finance - Banking - Gold — Domestic gold prices are continuously "increasing" in a short period of time.

From the perspective of supply and demand management, according to Mr. Hung, domestic supply has certain limitations, therefore, when there are fluctuations in psychology or other investment tools are not attractive, gold becomes an investment tool, so the price of gold increases.

From the perspective of State management of gold, this expert believes that gold is similar to foreign currency and is also a basic commodity, but the approach to the gold market is still administrative, so when there are fluctuations in supply and demand, the control method is still administrative.

“The combined approach of state management as a monetary tool and a financial investment product, as well as a basic commodity, will make the gold market management more effective,” said Mr. Hung.

Regarding the foreign exchange market in recent times, according to ADB experts, the exchange rate fluctuations in recent times are completely normal, because the foreign exchange market does not depend on Vietnam's internal situation, but also on general developments in the world. The USD index compared to the basket of foreign exchange rates from the beginning of 2024 to now has increased by 3%, assuming other currencies are fixed, the USD also increased by 3%, accordingly, the USD increased compared to the VND due to the nature of the USD's appreciation.

In addition, according to Mr. Hung, the foreign exchange market fluctuates due to supply and demand factors, specifically, in the first quarter, foreign currency demand increased due to the consequences of the fiscal year along with the need to use foreign currency for storage purposes... therefore, the exchange rate increase is appropriate. However, it is important that the exchange rate has a range of up to 5%, accordingly, the fluctuations in the past time are still within the range, so the fluctuations are still normal and there is no need to worry about using foreign exchange reserves to intervene.

Speaking to the press, economic expert, Associate Professor, Dr. Ngo Tri Long, acknowledged that Vietnam is managing the gold market in a “one-man market” manner, lacking integration and connection with the world. The closed-door policy has caused a very high gap between domestic and world gold prices, especially SJC gold, creating speculation and gold smuggling.

In the context of integration and open markets, the State cannot continue to implement a "closed door" policy on this commodity. Both in the past and present, there has not been a Central Bank in the world that has a policy of maintaining a gold brand and a monopoly on the production of gold bars.

From the perspective of organizations and enterprises, enterprises are not equal before the law in gold bar trading activities. The conditions for granting gold bar trading licenses are not based on any practical criteria but go against the natural laws of the market. This "suffocates" the distribution network that has been formed for many years based on the principle of supply and demand.

From the consumer perspective, the monopoly of a brand forces people to sell gold bars of other gold brands that they have bought and held for a long time at a cheaper price than SJC, sometimes nearly 15 million VND/tael (although the quality is the same). People have no other choice but to buy, sell, and accumulate SJC gold bars. The policy of gold monopoly has pushed the gold market to the extreme, causing disadvantages for consumers and the economy.

The gold market is "one market", people suffer when the difference between domestic and international prices sometimes reaches 20 million VND. Meanwhile, businesses do not benefit from the gold bar monopoly policy. That is the reality in the Vietnamese gold market for many years.

The gap between domestic and international gold prices is too high, which has encouraged gold smuggling, foreign currency loss while budget revenue is lost. A gold market that has never been healthy, unfortunately, is caused by state monopoly in the past decade.

The general consequence of such management is that the Vietnamese gold market is falling behind the world due to the lack of fundamental and strategic solutions. Therefore, it is believed that it is time for the State to boldly change its management mindset, return gold to the market, and the State Bank (SBV) will only monitor the volume, and even monitor the price when necessary.

Importing gold to "cool down" the market

Faced with the heat of world gold prices leading to a sharp increase in domestic gold prices, the Vietnam Gold Trading Association (VGTA) has just issued a document requesting a license to import raw gold for three businesses, including DOJI, SJC and PNJ. These businesses will import raw gold to make gold jewelry.

According to VGTA, there are several reasons for the strong fluctuations in domestic gold prices: the sharp increase in world gold prices affects domestic gold prices; the demand for gold increases due to crowd psychology; and the scarce supply of gold because for more than 10 years, the State Bank has not allowed businesses to import gold.

Therefore, VGTA believes that it is necessary to amend Decree 24/2012/ND-CP soon, because Decree 24 was issued on April 3, 2012, and has been issued for 12 years. The issuance of Decree 24 was necessary and contributed to stabilizing the gold market, but the current market context has changed a lot.

Decree 24 takes SJC gold bars as the national gold standard and the State Bank is the only agency to produce and supply SJC gold bars to the market. Meanwhile, SJC Company is not allowed to produce SJC gold bars itself but only performs processing under authorization and direct supervision of the State Bank.

VGTA believes that, in principle, the daily fluctuations in the price of SJC gold bars reflect the supply-demand relationship. However, the supply is limited because for over 10 years, businesses have not been allowed to import raw gold, while people's demand for gold has increased, leading to the price of SJC gold bars being often higher than the converted international gold price, at times up to 20 million VND/tael.

Currently, businesses are facing many difficulties in determining the origin of raw gold. Because they do not have the basis, conditions and obligations to verify the origin. This makes it difficult for businesses to purchase gold in the market. Businesses are worried about risks, including legal aspects, in organizing the purchase of raw gold.

VGTA assessed that if this situation continues, domestic supply will decrease, domestic gold prices will always be higher than international gold prices, causing people to suffer, while businesses cannot export to regenerate foreign currency sources. In particular, the value of exported fine art jewelry includes 25-30% of labor value.

Also according to VGTA, in recent times, amending Decree 24/2012/ND-CP and stabilizing the domestic gold market has been a hot issue that many people are interested in. After 12 years of implementation, Decree 24 has achieved success and completed its mission. In addition, Decree 24 has revealed many limitations, causing great impacts on the economy and the market such as the increasing gap between world and domestic gold prices...

In the current situation, many economic experts also agreed to propose to abolish the State monopoly on gold bar production, and to grant licenses to produce gold bars to a number of qualified enterprises. According to some experts, in addition to abolishing the monopoly on gold imports, to "untie" the market, it is necessary to abolish the monopoly on SJC gold bars and the monopoly on gold bar production.

With the above analysis, VGTA has issued a document requesting a license to import raw gold within a controlled scope for 3 enterprises, including DOJI, SJC and PNJ to manufacture gold jewelry with an import volume of 1.5 tons of gold/year (each enterprise imports 500 kg of gold/year).

Mr. Huynh Trung Khanh, Vice Chairman of VGTA, said that businesses will not import all 1.5 tons of gold at once but will divide it into several imports, depending on the decision of the State Bank.

According to VGTA, the figure of 1.5 tons is not large and is suitable for the market, because the domestic demand for gold jewelry is up to 20 tons.

VGTA representative said that gold import will help the market become more abundant. At that time, domestic gold price will decrease, the gap between domestic and international gold price will be shortened, instead of being too far apart as it is now. Thus, people will benefit and the gold market will stabilize.

"Immediately handle" the difference, not letting it affect the exchange rate

Faced with the situation of gold prices continuously "spiking", the Government Office has just issued a notice of the Prime Minister's conclusion at a meeting on solutions to manage the gold market in the coming time. Accordingly, the Prime Minister directed the State Bank of Vietnam to preside over and coordinate with relevant agencies to focus on strictly implementing the provisions of Decree No. 24/2012 of the Government on the management of gold trading activities.

In particular, the Prime Minister requested to closely monitor the developments of world and domestic gold prices and, according to assigned functions, tasks and authorities, with available tools and conditions, proactively and promptly implement solutions and tools to manage the gold market according to regulations to promptly intervene and immediately handle the situation of high difference between domestic and international gold prices.

At the same time, ensure the gold market operates stably, healthily, openly, transparently and effectively; put the common interests of the nation and people first and foremost; encourage the production and export of gold jewelry and fine art, creating jobs and livelihoods for workers.

The Head of Government also noted that measures and tools must be promptly implemented in accordance with legal regulations, especially Decree 24, to strictly, effectively and promptly manage and operate the supply for the production of gold bars and gold jewelry, in line with market developments. At the same time, it is necessary to ensure that activities and transactions in the market are strictly managed and controlled with existing tools, without affecting the exchange rate and state foreign exchange reserves, and without allowing profiteering, speculation, manipulation, and price hikes to occur.

The Prime Minister requested to strengthen the application of information technology and digital transformation in the supervision, management and operation of the gold market, especially the determination to have electronic invoices in gold buying and selling transactions to enhance transparency, improve the effectiveness of supervision and operation, and ensure the safe, effective, public and transparent operation of the gold market. In addition, the operating licenses of enterprises that do not strictly comply with the provisions of the law must be immediately revoked.

The Prime Minister assigned the State Bank of Vietnam, the Ministry of Public Security, the Ministry of Finance, the Ministry of Industry and Trade, the Government Inspectorate and relevant agencies to continue to strictly implement the work of grasping the situation, inspecting, examining, supervising... according to their assigned functions, tasks and powers; strictly handle violations of the law such as gold smuggling across the border, profiteering, speculation, manipulation, taking advantage of the policy of hoarding goods to push up prices by related organizations and individuals, causing instability and insecurity in the gold market.

After the Prime Minister's "order" on gold prices, answering the press on April 12, Deputy Governor of the State Bank Pham Thanh Ha said that recently, the world gold market has been complicated, domestic gold prices have fluctuated strongly, increased rapidly, and have a high difference with international prices.

To stabilize the market, the State Bank has prepared intervention plans and carried out inspections of gold trading activities of enterprises and credit institutions nationwide in 2022, 2023...

Specifically, for the gold bar market, increase supply to handle the high difference between domestic prices and world prices. For the gold jewelry and fine art market such as gold rings, continue to create maximum conditions to ensure sufficient raw materials for production activities to export gold jewelry and fine art.

The Deputy Governor said that the State Bank will coordinate with ministries, branches and functional agencies to require businesses to deploy the use of electronic invoices in gold buying and selling transactions to improve transparency and management efficiency.

The State Bank also conducts inspections, checks, and supervision according to its assigned functions, tasks, and powers; strictly handles acts of gold smuggling across the border, profiteering, speculation, and gold price manipulation.

Regarding inspection activities, the State Bank and ministries and branches have established inspection teams and will deploy them in April.

Regarding Decree 24 on gold management, which received many comments from experts, Deputy Governor Pham Thanh Ha said that the State Bank has had a report summarizing and evaluating the implementation process of Decree 24 and proposed a number of directions for amending and supplementing Decree 24 for implementation in the coming time.

Minh Vy (Synthesis)

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