Gold Price Fluctuations in Vietnam in 2012

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Gold has always fascinated the mankind’s imagination and influenced their urge to possess the same. Gold occupies a pivotal role in the social and economic life of poor and rich alike. In Vietnam, besides the economic and strong social considerations, individuals are highly sentimental about the gold jewellery in their possession, as the gold ornaments are passed on from one generation to another. Acquisition of gold is considered auspicious and necessary for making family ornaments to get a sense of wellbeing in our country. Gold is increasingly considered as an investment that appreciates over years and provides a hedge against...

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Nội dung Text: Gold Price Fluctuations in Vietnam in 2012

Gold Price Fluctuations in Vietnam in 2012 Instructor: Dr. Hoang Xuan Binh Group members: 1. Nguyen Thai Ha 5. Nguyen Thi Hue 2. Phung Thi Hao 6. Nguyen Thi Hoai Phuong 3. Nguyen Thi My Hang 7. Pham Ha My 4. Phan Thu Hien 8. Than Duong Thuy
9. INTRODUCTION 10. 11. Gold has always fascinated the mankind’s imagination and influenced their urge to possess the same. Gold occupies a pivotal role in the social and economic life of poor and rich alike. In Vietnam, besides the economic and strong social considerations, individuals are highly sentimental about the gold jewellery in their possession, as the gold ornaments are passed on from one generation to another. Acquisition of gold is considered auspicious and necessary for making family ornaments to get a sense of wellbeing in our country. Gold is increasingly considered as an investment that appreciates over years and provides a hedge against inflation. Gold is also considered as a medium that can be pledged easily during difficult times for securing financial accommodation. 12. Gold price in Vietnam in long-time trend is upward but in short-time period, the price of gold fluctuates very complicatedly. From 2001, gold price increases continuously. In 2012, the price of gold is really “hot”. The enormous rise in gold price causes an unhealthy psychological effect on people: when the price goes up, they try to buy as much as they can, but when it falls, people tend to sell gold as quickly as possible. This is one of the reasons for the expectation of increasing price level of gold, beside the main factor brought by the fluctuations in global gold prices. The instability of gold price seems to make Vietnam’s economy worsen. Moreover, gold market in Vietnam has a close relationship with the market in the world. It raises questions that what the causes, effects and solutions for this situation are; and which will have a direct effect on? 13. From the above, the reasons for this fluctuation, effects and solutions are the most concern of many people. Thus, we chose “Gold price fluctuations in Vietnam in 2012” as our topic. The assignment is presented in the following structure: I. Overview in gold price II. Gold price fluctuations in Vietnam in 2012 III. Prediction on gold price in 2013 and policy suggestions 14. 15. 16.
I. OVERVIEW ON GOLD PRICE 17. a. Basic knowledge on gold 18. 19. Gold is a chemical element with the symbol Au (from Latin: aurum "gold") and an atomic number of 79. 20. 21. Gold has significantly shaped the history of man, his economy and his overall perception of life to being a simple hunter gatherer to a man who is driven by the power of capitalism and understands the value of wealth and its possession. 22. People hold gold for a safety, security and privacy thanks to its valuable and highly sought-after precious metal for coinage, jewelry, and other. When buying the right gold, it is easy to buy, sell, store and transport in a crisis. Many investors around the world see gold as “the ultimate asset” – an important and secure part of their investment portfolios. Gold has kept up with inflation during the past 200 years. 23. Although it is one of the most popular investment portfolios, gold weight measurement is different in each part of the world. Therefore, investors must study the measurement of gold in the market they invest. 24. a. Measurement of gold a.i. Measurement of gold in the world 25. Since gold is real money it doesn’t really have a price but more than an exchange rate with other currencies. In the world, gold measuring is usually done from 2 points of view: Purity and Weight. The purity of gold articles may be described in two ways: Carat, meaning parts of gold per 24 and Percent, meaning parts of gold per 100. About gold’s weight, the most widely known and used measure unit for gold is the troy ounce.
26. 27. One troy ounce (480 grains) is 31.1034768 grams. a.i. Measurement of gold in Vietnam 28. In Vietnam, gold’s purity is also measured in carats. However, most popular gold’s weight measurement here is “chỉ”, a traditional Vietnam weight unit. Additionally, “cây” is another unit to measure a great amount of gold. 29. 1 chỉ = 3.75 grams 30. 1 cây = 10 chỉ 31. 32.
1. The formula to convert the world gold price to the domestic gold price 33. This is the general formula to convert the world price (WGP) to the Vietnamese gold price (DGP) 34. DGP = (WGP + shipping charge + insurance premium) * 1.20556*e (VND/USD) + processing charge 35.
II. GOLD PRICE FLUCTUATION IN VIETNAM IN 2012 36. a. The situation of gold price in Vietnam 37. In Vietnam, the average growth rate of gold price increases 24% per year in recent years. The rate is so high that many people decide to invest into gold and gain much profit from this investment. After that, the fluctuation of gold price affects national inflation by philosophy and belief of residents. 38. According to economic statistics, the growth rate of gold price in 2012 is quite slower than that one over the last decade. The average growth rate in 2012 is greater than that of 2011 by 7.83% but much lower than that of 2011 against 2010 (39%). 39. 40. 43. Gold price/tael (million 41. Month VND) 42. 44. 31-01- 45. 43.75 12 46. 29-02- 47. 44.89 12 48. 30-03- 49. 44.23 12 50. 30-04- 51. 43.05 12 52. 31-05- 53. 41.59 12 54. 29-06- 55. 41.92 12 56. 31-07- 57. 41.79 12 58. 31-08- 59. 42.98 12 60. 28-09- 61. 46.35 12 62. 31-10- 63. 47.36 12 64. 30-11- 65. 47.17 12 66. 31-12- 67. 46.47 12 68. 31-01- 69. 45.42 13 70. 28-02- 71. 43.32 13
72. 29-03- 73. 43.84 13 74. 30-04- 75. 42.83 13 76. 77. 78. Gold prices can divide into 3 main periods from 2012: • From January to May 2012, gold price fluctuated. At the end of February 2012 it rose dramatically, from 43.8 million dong to 44.9 million dong but after that it decreased sharply and reached the lowest point at May 2012 (41.6 million dong). • From May to August 2012, it remained stably at the average level of 42 million dong per tael. Positive relationship between gold price and risky assets such as stocks was being raised. • On the contrary, gold price had the sign of recovery and rapidly reach the peak with the figure of 47.4 million dong. It is obvious that the price of gold in the global market that rose to $1,772.60 per ounce had pushed the domestic market, which has been the trend during the first two weeks of October. However, from October 2012 gold market continued falling temperature and declined steadily. 79. As can be seen, the gap between domestic and global price of gold was still quite big, which is between 2.8-3 million VND (roughly $140-150) in favors of the domestic one, due to lack of a good connection between domestic and foreign gold investors. According to Reuters, the level of profit that investors gain from gold market is lower than other basic goods belonged into RJ/CRB Index. 80. a. Causes of gold price fluctuation a.i. The international influence on Vietnam’s gold price 81. The world gold price and our domestic gold price have a strong relation. Any changes in the global gold price can have direct influence on our country’s gold price, and the price in the world can be the reference system for the price in Vietnam. However, the gold price of Vietnam’s market is set by the government, so when the gold price in the world changes rapidly, the Vietnam gold price reacts slowly. In 2012, there was a rising trend all over the world, which directly caused our domestic price to fluctuate in the same rising trend. Therefore, investing in gold was still the key to profits in 2012. The phenomenon of increasing in price of gold in 2012 is caused by some main factors. 82. The first reason was the decline in gold supply. Gold is provided mainly from gold mining companies, the recycling gold after being used and the possible sale of gold of central banks. Some of the largest mining gold producers of in the world are in South Africa, United States, South America and a little in Indonesia and Australia. But in this year, mines in those countries were encountering difficulties. Strikes, power outages and being forced to dig deeper into mines were increasing the cost of excavating, especially in South Africa. This seems that the drop in production was on the cards in 2012, and as we all know, fall in supply will lead to the rise in the price.
83. The second one was the rise in demand. The demand for gold is composed of three building blocks: Gold for technological applications (particularly in dentistry and electronics), gold in jewelry and gold as an investment product. 2011 saw a 30% increase in demand for gold coins and this trend continued into 2012 as the global economy still looked gloomy. Investors, to protect the wealth, intended to a safe investment like gold. 84. The third reason was the central bank activities. Central banks around the world had bought some 150 tons of gold in the 3rd quarter of 2011. This was a dramatic u-turn from traditional policy which was to sell. Venezuela had been in the news as leader Hugo Chavez began the process of repatriating the nation’s gold supply. Central banks were looking for gold because they were unsure about the status of foreign debts with some nations threatening to default on loans. 85. The next one is low interest rates. The interest rates in all over the world almost remained low in 2012 which reduced risks in investing in gold. There was a co- tango between gold’s lease rate and interest rates which lead to a higher gold price. Investors also had low regard for hedging companies which put pressure against the process of hedging. 86. In addition, one of the important reasons was the economic climate. Various bailout packages and quantitative easing measures took action and give some results. Typically, the economy of United States showed signs of recovery by the quantitative easing policy (QE3) in October 2012; the EU public debt has been more optimistic and the Chinese economy was not in difficulties after a hot growth period as many experts considered. They had the direct impact on gold price. When the world economy has overcome the crisis, the thoughts holding gold would be reduced, and then it might lead to the downward trend in gold price in the next time. 87. Finally, one more reason is jewelry. Nearly 50% of the global demand for gold focuses on the jewelry industry; it was account for about 2000 tonnes in 4405.5 tonnes of total gold demand in the world. Moreover, the two countries were the world’s largest jewelry market, China and Indonesia, have been experienced increases in demand of gold. Although the physical amount of gold required for jewelry has decreased from 2011 to 2012 about 4%, the increase in price of gold means that the dollar demand was higher than ever. 88. All the factors above indicate that the world gold price continue the rising process following last 11 years. The high level of gold price in the world created the psychology holding gold on individuals and businesses which directly and strongly influences Vietnam’s gold price. a.i. Domestic influence 1.1.a. Demand and supply 89. Vietnam is a gold import country. When the government set the gold price lower than the equivalent world gold price, gold trading companies whose gold source is available will export gold to gain profit. In case, the domestic gold price is higher than the world price, they will import gold to supply the domestic market. However, this source depends on the quota allowed by State Bank. Thus, the supply hardly meets the
demand of gold, which forces gold price higher and higher. Speculation and smuggling make the price of gold in the country more difficult to control. 90. The gold demand in Vietnam includes: gold for jewelry, gold for accumulation, gold for production and gold for investment. They have the strong and direct impact on the gold price in the market. 91. Since the gold bars were used in Vietnam’s gold market, they began to be used as a profitable investment channel or as a form of payment instead of cash. The consequence of this development was that gold was manipulated by speculators, which pushed prices up and up about an average of 24% per year. 1.1.b. State’s policy 92. In 2012, the government has many policies to stabilize the gold market, but it seemed that they were not much effective. 93. In this year, SJC gold is chosen as the national gold brand. In fact, SJC gold accounted for the largest market share (more than 90%) which created a natural monopoly advantage, when there is any gold price fluctuations, the scarcity of SJC gold makes the gold market much more volatile. After that, SJC gold has the highest price compared to other brands in the country. At the end of 2012, there was a very big gap between the domestic price and the world gold price (4.5 million/tael). 94. In May 2012, the government announced the provisions of Decree 24 about trading of gold bars, the government is exclusive in producing gold bars, importing and exporting raw gold and there is no discrimination between SJC gold bars and others. Therefore, the gold bars including SJC or others are all recognized, protected by law and purchased, sold, exchanged in spite of discriminatory prices for other gold brands. 95. In addition, Circular 16 and 14 of the State Bank on the management of gold trading activities and regulation of credit institutions have to stop mobilizing and lending in gold, firms are not allowed to convert gold status in their account into physical gold and they are just allowed to buy gold in the domestic market only. Consequently, the firm not only lost billions of dong but also did not contribute to the state budget, causing gold fever. 96. In short, the inconsistency in the regulation of the function of the government in gold trading activities leads to many loopholes in gold trading activities and controlling gold prices in the country. 1.1.c. Crisis 97. The macroeconomic situation is not stable in 2012 made people have a tendency of buying more gold for accumulation and investment. According to Planning & Investment Ministry, 2012 witnessed 54,261 bankruptcies of enterprises, lack of capital in manufacturing, paralyzed banking, so investing in such thing as immovable assets, stocks, and finance market was so risky that many investors chose gold as safe haven asset. Obviously, the increasing in demand accelerated the gold prices. 1.1.d. Inflation 98. The inflation in Vietnam is reduced from 18.13% in 2011 to 6.81% in 2012, but it is still a big number and additionally, the prices of almost things in the market have increased all the time especially gasoline and oil; so that, Vietnamese people have a strong belief that inflation rate would be high in the future. They consider
gold as a perfect thing preserving the value. Keeping gold at home is a long-standing habit of Vietnamese people and it seems that this habit certainly will be favored in the future. 1.1.e. Investor’s psychology 99. The decision of investors can be affected by many factors. When they feel positive about the market, they will invest more. It seems that, Vietnamese people are likely to purchase more gold when the prices appear to rise. However, with the unsteady and cautious psychology, if they hear any bad news like financial scandals and corruptions, many of them will worry and might be lose everything. For example, the capture of Nguyen Duc Kien and the reassignments of 4 senior leaders of ACB and Eximbank caused a lot trouble for ACB bank and other financial banks. Customers felt unsafe of their money and many of them withdrew to buy gold. This sudden rise of gold demand made the gold price have a high jump, widening the gap between the local and international price (5 million VND/tael). 100. a. The impact of gold price fluctuation in Vietnam a.i. Impact on real-estate in Vietnam 101. 102. 103. According to a legal term used in jurisdictions such as the United States, United Kingdom, Canada, Australia and New Zealand, real-estate is “Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; (also) an item of real property; (more generally) buildings or housing in general. Real-estate also means “the business of real-estate; the profession of buying, selling, or renting land, buildings or housing”. 104. Dr. Nguyen Tien Dung, CEO of the Institution for Research Administration identifies that higher gold prices greatly affect the real-estate market. • Gold is used as the unit of account in housing transactions: 105. According to a survey, in Hanoi, most of the real estate transactions are no longer tied to the price of gold as before, but in Ho Chi Minh City, by contrast, paying these real estate transactions in gold is quite common. As gold prices surge, especially when Vietnam dong is not reliable and safe enough, the individuals or investors must find ways to purchase real estate in gold or dollars instead. The amount of real estate transactions in gold is still up to 60% or 70%. 106. When the gold price increases, the purchasers will need more money to pay for the same amount of gold. This gap is really a big burden especially when the price of gold rockets and the amount is large. This reality ceases the purchasers from
conducting their expected transactions because they believe that the price of gold is very likely to keep rising in the near future and they may experience a great loss. 107. Moreover, gold is also considered as the unit guaranteeing the value of the borrowing when people want to make a loan to purchase real-estate properties. This means that when gold price increases, they bear a much bigger debt than they expected, which leads to the same situation as mentioned above. 108. Faced with the sharply rising gold price and current instability, real-estate market becomes very bleak. Many of the transactions were deposited by gold in advance but due to changes in the price of gold, these transactions have been broken or bust. Home buyers or investors are very afraid of the sales that require payment in gold, because gold seems to increase in the future. • Gold is a popular means of speculation: 109. When the gold price spikes, more people moved from real-estate to invest in the gold with the hope that the price of gold will continue to rise in the future. This resulted in reducing demand for real-estate and oversupply occurred. The obvious result is the market become immensely stagnant and dull, or even frozen. 110. A part of the sellers wants to carry out transactions in gold and gain benefits due to price difference. 111. Given the situation of Vietnam gold market over the past two years in which the gold price varied unpredictably but had the upward overall trend, not only do the real-estate sellers become quite reserved in selling because they expect the price keep on rising to get more profit but the buyers are also prudent to buy. On the whole, the dramatic, continuous and unpredictable rise in gold price cause the real-estate market to be confused and disoriented which leads to the reservation of all the transaction parties. Consequently, the market gets stagnant. 112. a.i. Impact on commercial bank activities. 113. Firstly, commercial banks finds it difficult to lend to customers in gold because when the price of gold increases, they have to pay much more money for the same amount of gold, which also means a huge loss. Meanwhile, statistics showed that the capital mobilized in gold has reached 95 trillion dong (115 tonnes of gold, or $4.8 billion). This fact leads to the imbalance of funds, lack of capital investment in the surplus of gold reserves. On the other hand, if the price fluctuates much, commercial banks suffer with lots of risks: • Debt evasion of their customers. When customers forecast gold price falls, they sign a contract to sell gold to the banks at a fixed price, if it falls as expected, they will buy gold to return to the banks and enjoy the price gap. Conversely, they will lose. • Collateral of gold contract. Collateral consists of money deposits, shares, letter of guarantee, warranty. In the case of customers’ loss, they do not implement their duties; the banks can not sell their shares, or other valuable papers to withdraw funds. Again, the banks lose their capitals. 114. Secondly, the increasing gold price encourages gold speculation. People would withdraw money from banks to buy gold to store up instead of depositing at banks. As a consequence, capital is concentrated in gold market; capability of mobilizing
capital of the banks has been reduced. Besides, the client’s withdrawals from banks to speculate in gold will increase the amount of money in circulation, leading to higher inflation. Higher inflation means that the State Bank must implement monetary tightening to reduce the volume of money in circulation, but loan demand by businesses and individuals is still very large, banks can only meet applications for a few customers with signed contracts or really effective projects, under the level of risk allowed. On the other hand, due to rise in interest rate, this has worsened the investment environment of the banks, moral hazard will occur. As the purchasing power of Vietnam falls, the price of gold and foreign currencies increases, raising capital with a term of 6 months is really hard for each bank, while loan demand for medium and long-term is large, so the use of short-term loans for medium and long-term loans over time in each bank is not small. This has affected the liquidity of the banks, the risk term is unavoidable. 115. In addition, according to the Circular 12 (2012) of State Bank, from 26/11/2012, all of commercial banks must stop mobilizing gold. Therefore, in order to abide the Circular, the banks had to buy gold to pay back to the customers with high price. So they got lost. In 2012, ACB got lost up to 1,700 billion VND. a.i. Impact on macroeconomics and monetary policy 116. The fluctuation of gold market caused a serious impact on the macroeconomics, resulted in the changes of monetary policy. 1.1.f. Slow down the interest rate reducing process 117. Beside the actual demand of storage, the investment of gold quickly creates great profit and it become one of the channels of investment which is preferred to the saving money in the banks. In 2012, interest rates on deposits in the most of banks was lower than 14% a year, the amount of interest when the saver spent 100 million on banks is 38,900 VND, which is much lower than the interest of gold fluctuation every day. 118. The last months of the year are the time when firms and people increased withdrawals for production, spending, shopping, rewarding, etc. Then, people continued spending money on gold instead of saving in the bank because gold price was higher, the system of liquidity was stress, this meant reduction of interest rate process was prevented due to people’s money withdrawals to buy gold. 1.1.g. Foreign exchange reserves fall 119. Foreign exchange reserves play an important role in evaluating the financial potential of a country. Most countries maintain and manage foreign exchange reserves in order to serve the basic objectives such as the implementation of monetary policy and exchange rate policy, maintaining the liquidity of the foreign exchange market, limiting the impact negative in the case of the financial crisis. In Vietnam, domestic gold consumption increased when the world gold prices are lower resulted in the amount of foreign currency which was used to import gold became higher. Meanwhile, firms bought foreign currency from the free market or from commercial banks leaded to the stress of demand and supply of dollars increases. State Bank of Vietnam (SBV) had to sell foreign exchange to stabilize the market, foreign exchange reserves was declined. 1.1.h. People’s beliefs in government declines
120. When the price of gold fluctuates, SBV always calmed down and recommended that people should be careful when buying and selling gold in order to avoid being disadvantaged by speculators and SBV allow importing gold. This showed that short-term decisions of SBV had not been able to strengthen people’s belief on the ability to the Government. In addition, when people preferred foreign currencies, gold is a channel of the storage and speculators which creates big profit, the strength of the VND is significantly affected. a.i. Impact on speculators 121. As we can see, in 2012, the gold price in Vietnam followed a dramatic erratic trend, which is the result of some major factors: the impacts from ECB, FED or the fluctuations in the economy recession. On top of that, some domestic facts also had a significant influence to gold price in reality, such as the impact from monetary policies, the increase in oil price and activities from commercial banks. Moreover, there is no doubt that the reactions of speculators, who buy when the supply is abundant and the price low, pushing up the price fluctuations and the fact that gold market in Vietnam always stayed at higher price level than the world price. 122. In 2012, with the purpose of speculation to manage all gold market, many organizations and individuals purchased a large amount of gold and kept them as a store of value until gold price increase dramatically. “Speculation can mean many things and take many forms. Basically, it is the attempt to profit from price changes”. To be more precise, in one side, the significant changes in gold market in Vietnam brought a precious opportunity to make profit for brilliant speculators. Unexpected gold price fluctuations encouraged short term speculation. In other words, because it is hard to foresee the change in gold market, also, as far as they knew, in the long term, sending VND to banks possibly was a smarter, safer and more profitable way, the speculators just kept gold for a short time before selling it, as long as it brought them profit. It is the best way to prevent their assets from losing value. 123. On the other hand, gold price changing unexpectedly brought great risks to speculators, which means if they did not have the ability to catch chances to sell or buy gold intelligently, they would lose money. Fact have shown that many individuals and companies bought an enormous quantity of gold and did not sell it into gold market, leading to the shortage in supply this metal, with hope of raising the price continuously, and then they could sell it with much higher price than the price they bought. However, this is risky and many of them had to pay an expensive price to this. The gold price increasing and decreasing making them selling them at lower price and went bankrupt. 124. Turning to other issue, in the last months of 2012, under the impacts of increasing inflation, the gold price rose fast. Many people guessed that the price would exceed 50 million/oz. But as expected, speculators could realized that this price level was far from normal, if the price continued to rise and lots of control, it was risky to them. 125. Actually, the condition of gold price fluctuations in 2012 had a great impact on speculators or investors in Vietnam. It not only brought chances but also risks to them. 126.
127.
2. Reaction to stabilize gold price of the Government and State bank in 2012 128. Witnessing the fluctuations in gold price, Government and State Bank of Viet Nam (SBV) did certain moves to timely respond to the situation. In early 2012, SBV did not allow the import of raw gold to produce gold bar and also did not implement gold stabilization as well but, gold smuggling across the border hardly occurred. As a result, the exchange rate and foreign currency market stayed stable, not being negatively affected by the volatility of gold price. As directed by the Government, to control the gold market, the SBV has developed a roadmap to prevent “goldenization” of the economy. The roadmap consists of three phases as follows: • Phase 1: Formulating a strict legal framework to manage the gold market; • Phase 2: Termination of mobilization and lending in gold by credit institutions; • Phase 3: Fully turning the gold bar mobilizing and gold loans into gold bar trading; 129. The State was to responsible for gold mobilization by buying gold to increase the official reserves and capital supply to the economy. 130. On April 3, 2012, the Government laid out Decree No. 24/2012/ND-CP (Decree 24) to replace Decree No. 174/1999/ND-CP dated December 9, 1999 on gold trading management. This is a sound decision-making of Government to stabilize the gold market and prevent gold speculation. Specifically, the issuance of Decree 24 aims at the two main objectives. The first is to reorganize the gold-bar market, prevent the adverse consequences of the gold price fluctuation to the exchange rate, inflation and macro-economy stabilization. The second is to enhance the state management of the gold market, prevent and drive back dollarization in the economy, take proper measures to mobilize gold resources from the population for the social-economic development. Decree 24 also acknowledges the legal right of the gold ownership by individuals and enterprises; the right of gold bar trading at credit institutions and enterprises designated by the State. 131. In response to Decree 24, the governor of SBV issued Circular No.16/2012/TT-NHNN (Circular 16) on May 25, 2012 guiding a number of articles of Decree 24 on management of gold trading activities. Circular 16 stipulates in detail the conditions and requirements to grant gold bar trading licenses for credit institutions and enterprises. 132. Before the issuance of Decree 24 and Circular 16, SBV chose SJC (Saigon Jewelry Company) as a wholly-State run company and the country’s national brand with 95 per cent share of the local market. However, after the central bank decided SJC was not allowed to wholly produce and distribute, the SJC gold bullion was now controlled by the central bank and SJC gold trading was similar to the trading conducted by other companies. Specifically, on December, 2012, SBV decided to grant gold-bar trading licenses to 17 credit institutions and 14 enterprises which meet the condition, applications and procedures stipulated in Decree 24 and Circular 16. These credit institutions and enterprises have about 2000 gold bar trading transactions points distributed over 63 provinces. 133. With strict provisions on the gold trading management, the gold market is being reorganized basically step by step in order to protect the legal right and interest of
people. Citizens feel more secure when buying and selling in licensed gold bar market with public and updated information on gold price and healthy competition among service providers. According to Circular 16, enterprises and credit institutions without gold bar trading licenses granted by SBV are not allowed to trade gold bars. The regulation is designed to make it easier for the central bank to manage the local gold market. At the same time, the monetary authority also hopes to relieve the high pressure on public gold holdings caused by the limited number of gold selling points in recent time. 134. At the end of 2012, SBV affirmed that the year 2012 marked the first step in the gold market management in accordance with the policy oriented by the Government. SBV made great efforts to advise the Government in completing the legal framework, implementing the termination of gold mobilization and lending by credit institutions and the application of measures to manage the gold market. Thus, the domestic gold prices, especially in the gold bar market of 2012, experienced many significant changes. In spite of considerable fluctuations in global and domestic gold price, the big gap between global and domestic gold price did not go along with the phenomenon of “gold fever” as before. In addition, transactions took place at reliable and professional business entities, better ensuring people’s interests. 135.
III. PREDICTION ON GOLD PRICE IN 2013 AND POLICY SUGGESTION 136. a. Prediction on gold price in 2013 137. The year 2012 finished with an upward trend in gold price level which is a good signal for Vietnam’s Economy. However, it can be clearly seen that the gold price will change in 2013. On that condition, many renewed financial and economic professionals from well known magazines and organization revealed their forecasting on the trend of world gold price in 2013. a.i. Goldman Sachs 138. Goldman Sachs cut forecast for gold price in 3 months, 6 months and 12 months to $ 1,825 / oz, $ 1,805 / oz and $ 1,800 / oz respectively. Yesterday 5/12, Goldman Sachs said increasing cycle of gold price will end next year when real interest rates rise and the global economic recover growth. Specifically, Goldman Sachs cut its forecast gold price in 3 months, 6 months and 12 months to $ 1,825 / oz, $ 1,805 / oz and $ 1,800 / oz respectively. "In the medium term, gold prices will be under pressure as the U.S. economy’s slow recovering growth momentum," Goldman Sachs said. a.i. GFMS chairman, Philip Klapwijk 139. Speaking to Reuters, GFMS chairman, Philip Klapwijk said: "We expect gold prices will reach a new peak in early 2013 after declining slightly this year due to a decline in investment demand in many major markets”."We expect that gold prices will rise above $ 2,000 /oz in 2013, but 2013 could mark the peak of the market which depends on whether we see one of the solutions in Europe that is enough to solve the debt problem or not ... or U.S will withdraw stimulus measures and the prospect of normalizing monetary policy," said Klapwijk. He predicts gold prices will fluctuate in a range from 1.530 to 1.920 $ / oz in 2012 and the average price $ 1.731 / oz. "What we see is the delay of another strong increasing. Milestone of $ 2,000 / oz could be conquered in the first half of 2013 than the second half of this year," Klapwijk said before the release GFMS Gold 2012 report. 140. Marketing analyst Sean Lusk of Precious Metals Ironbeam Company 141. Marketing analyst Sean Lusk of Precious Metals Ironbeam Company said that the negative sentiment on gold has existed in recent months as the stock market rose to a record high and the investment banks reduce the prediction of gold prices. Predicting the direction of gold, Lust said that the gold price may continue to test the $ 1400 / ounce after falling down in the last session. a.i. Credit Suisse Group AG 142. Credit Suisse Group AG said gold price has fallen 17% since the beginning of this year and aims to reduce by 20% in this year because of not accelerating inflation and the worst risk of global economic warnings. Ric Deverell, head of commodities research at Credit Suisse from 2010, after working in the Reserve Bank of Australia said that the price of gold will trade at $ 1,100 / ounce in the next year and $ 1,000 in the next 5 years. Price reduction does not seem to attract the central bank buying.
a.i. HSBC 143. HSBC cut its forecast for average gold price in 2013 to $ 1,760/oz, from $ 1,850 forecast/oz .After considering closing price in 2012 at $ 1,675/oz, HSBC predicted lower average gold price this year to $ 1,760/oz, from $ 1,850 forecast/oz. In addition, HSBC forecasts unchanged average gold price in 2014 at $ 1,775 / oz and predicted for 2015 at $ 1,675 / oz. However, HSBC also said that the gold market tends to go up in 2013 thanks to the support of basic elements such as supply - demand. HSBC predicts India's gold demand will bounce back in 2013 as traditional consumer trend of its people. a.i. Do Minh Phu – president of gold and gemstone DOJI group 144. “After 30/6, the distance of gold price between domestic and international market would rather than logical”. This is the opinion of Do Minh Phu – president of gold and gemstone DOJI group because demand and supply nearly reach equilibrium. In addition, the request of investors will not too high and the gold price in the international market tends to go down. 145. Prediction gold price is not simple. However, it can be seen that the increasing price period from 2000 to 2012 is continuous. Within 12 years, the price of gold reached an average increase of 27%, even in some periods, it increased by 33%. But in 2013, the gold price does not go along the previous cycle and is on downward trend. . It can be said that the gold rally may remain in the medium term. In short, the price of gold will have great pressure, because the belief in gold will no longer similar to time before. 146. Broader global economy, we can see that there are an emerging signs of recovery especially the stronger dollar shows that the U.S. economic indicators are quite impressive. Therefore, investors are finding the riskier investment channels, they are no longer considered gold as an attractive market. On the other hand, the credit funds tend to sell out constantly which is creating pressure on the gold market. He thinks that the current domestic price pressure is difficult to break higher. However, I do not entirely believe that domestic prices will go down from now until the end of the year but hardly increased at a high level as the previous year. 147.
a. Policy suggestion a.i. Short-term solutions 148. Firstly, the State Bank of Vietnam (SBV) should issue promissory notes in gold, so-called paper gold, and sell to commercial banks. Besides, the SBV should give permission for commercial banks to receive banks deposits which are guaranteed by gold. By this way, the situation that people withdraw deposits in VND to buy gold which making the loss of liquidity in commercial banks could be avoided. 149. 150. Secondly, because exchange rate between USD/VND impact significantly on gold price, SBV should stabilize this exchange rate. One of solutions is SBV borrow gold from commercial banks by issuing long term bonds and resell those gold to trading enterprises. These enterprises are required to pay SBV in USD and then, this amount of USD will be used to stabilize the exchange rate. 151. Thirdly, SBV can reduce the gap between domestic gold price and the world gold price by allowing enterprises import and export freely gold plates. 152. Finally, gold monopoly market should not exist. Reality has proved that since government authorized SJC to become national gold producer, gold price has not been stabilized and the gap between domestic gold price and world gold price is widening. a.i. Long –term solutions. 1.1.a. Establishing national gold trading floor. 153. According to PhD Le Dat Chi, Ho Chi Minh University of Economics, establishing national gold trading floor could bring following benefits. Firstly, government can static and control gold and foreign currency speculation and tax gold trade. Therefore, government budget will increase and exchange rate pressure will reduce. 154. Gold trading floor must be managed by the state. Gold will be listed as a type of stock. Both domestic and international investors can join the market. This solution will help reduce differences in gold price and prevent gold smuggling. 1.1.b. Mobilizing gold reserve in the population 155. According to Mr. Nguyen Van Binh, Governor of the State Bank of Vietnam, there are about 250 to 400 tonnes of gold in population. It is huge amount and if government could mobilize this gold, gold supply will increase sharply. Consequently, price of gold will reduce. 156. The state should educate citizens about gold speculation, both advantages and disadvantages for themselves and national economy. Moreover, the most important solution is conversion from gold bars into gold certificates and vice versa. The Sate Bank will issue gold certificates to gold holders and keep their gold with suitable interest rate.
157.