Gold market management needs to be changed to resolve the paradox

SJC gold price has a high difference from world gold price and domestic gold ring price. Photo: H.Dịu

Disparities and paradoxes

Looking back at the gold market in 2023, from the beginning of the year to August 2023, the SJC gold price was quite stable, sold at the price of around VND67 million/tael, but from September 2023, the gold price began to "fluctuate" with fast and sharp increases. Then, in the last days of December 2023, the gold price continuously hit its highest peak ever, reaching VND80 million/tael sold.

Faced with the reality of such "dancing" gold prices, the Prime Minister had to intervene with a telegram requesting competent agencies to urgently implement prescribed solutions to stabilize the gold market. After that, although it has stopped "escalating", the world gold price is also at a high level (from the beginning of 2024 until now), the SJC gold price is currently still around VND78 million/tael sold.

In fact, besides high prices, the problem in the domestic gold market is the high difference between buying and selling between domestic and international markets. For example, in SJC gold price, the difference between the selling price and the buying price is VND3 million per tael; the difference between domestic gold price and world gold price has reached VND18 million per tael. On the other hand, SJC gold price sometimes increases faster or in the opposite direction of increase - decrease compared to the world gold price. SJC gold price is still widening the difference with the price of gold rings and 9999 gold of other gold brands which is up to more than VND13 million per tael.

With this development, the story of gold market management, especially the change and amendment of Decree No. 24/2012/ND-CP dated April 3, 2012 of the Government on the management of gold business activities (Decree 24) is even "hotter" than ever.

This issue has been raised by many experts and gold businesses several years ago. The reason is that when commenting on Vietnam's gold market, despite appreciating the many timely effects that Decree 24 brought about at the time of promulgation, after nearly twelve years, experts are concerned that the domestic market has not had a connection to the world gold market, the demand exceeds supply while businesses are limited in importing raw gold, with a monopoly on gold bar trading...

According to Mr. Nguyen The Hung, Vice Chairman of the Vietnam Gold Business Association, Decree 24 only mentions physical gold, especially SJC gold bars were chosen as a national brand and are exclusively produced and traded by the State. Meanwhile, according to the Association's survey and through working sessions, in countries around the world, including major economies, the Central Bank does not directly manage gold trading, because they believe that gold is a common commodity, so it only has a role in coordinating national gold reserves.

Mr. Hung also reflected the worrying situation about gold smuggling and foreign currency "bleeding".

Recently, many large gold smuggling cases have been discovered. For example, in July 2023, Khanh Binh Border Gate Customs Branch (An Giang Customs Department) coordinated with An Giang authorities to handle the illegal transportation of 19 kg of metal (suspected to be gold) from Cambodia to Vietnam. Moreover, in November 2023, the Ministry of Public Security issued a wanted notice for a female gold shop owner involved in the smuggling of nearly 200 kg of gold in Ho Chi Minh City, Tay Ninh... also from Cambodia to Vietnam...

The Vice Chairman of the Vietnam Gold Business Association also pointed out a paradox that Vietnam must buy international standard 9999 gold to produce in Vietnam to localize with SJC gold, but if the business needs to export SJC gold is not recognized as international standard gold, it must be considered as raw gold. Thus, it is estimated that a business trading gold jewelry for export must incur a cost of US$12-US$15 for 1 ounce to convert to meet export requirements.

Creating competition in supply, establishing a “golden floor”

Currently, the situation of "dollarization" or "goldization" no longer has a chance to take place thanks to many monetary policy management solutions, people do not use gold as a means of payment, so experts recommend that it's time to return the true market for gold items. That means creating conditions for gold trading enterprises to have sufficient capacity and production conditions to operate equally; creating a mechanism to supply raw gold to meet people's needs; at the same time, ensuring connectivity between domestic and world markets...

In particular, many opinions have expressed their views and proposed the early establishment of a Gold Exchange to manage the gold market transparently and effectively, following world trends.

Prof.Dr. Hoang Van Cuong, Member of the National Assembly's Finance and Budget Committee, Vice Principal of the National Economics University, said that if the monopoly of SJC gold bars is maintained while the supply is low and demand is high, then naturally the price will increase. Hence we must open the door and create conditions for many businesses to have a larger, more widespread and competitive supply. The more competition in supply, the more beneficial it is for the buying and selling market, without unreasonable price increases like in the past.

Furthermore, with a "gold floor", people will change their psychology of storing gold, helping gold stay on the market and circulate. Because some estimates show that the amount of gold reserves in the population is currently 300 tons, some figures are 400-500 tons, so this will be a great resource for socio-economic development if it could be mobilized. Not to mention, helping the gold market stabilize will "help" authorities in preventing smuggling and ensuring monetary security. Along with that, more favorable gold production and trading conditions can bring gold export turnover to Vietnam estimated at more than US$2 billion/year because currently, other countries in the region are earning US$6 -US$10 billion/year from gold export.

At the recent press conference of the State Bank, a representative of the State Bank's leadership also said that large differences between domestic gold prices and world gold prices are unacceptable, so amending Decree 24 on gold business management is necessary. At the same time, the shortcomings of the current gold market will be considered for amendment, with the orientation of ensuring both management and marketability.