Innovating gold market management mindset

Ass. Professor Dr. Nguyen Thuong Lang, Senior Lecturer at the Institute of International Trade and Economics, National Economics University

What are the causes of the ongoing surge in gold prices and the supply shortage?

The sharp increase in domestic gold prices is largely due to a continuous global gold price rise, which has climbed by around 37% over the past year.

This trend may continue as regional conflicts in Europe (Russia-Ukraine) and the Middle East (Israel-Hamas) show no signs of de-escalating, with other geopolitical tensions, potential impacts from the US presidential election, and declining interest rates also contributing.

These factors are increasing demand for gold as a reserve asset to hedge against risks from spreading conflicts and monetary easing.

Additionally, short-term gold speculation for profit has inflated total gold demand, making it difficult to determine a “peak” or “ceiling” price. Other investment channels such as real estate, stocks, and bonds are slowly gaining traction but have not yet attracted funds as quickly as gold.

Vietnam’s relatively small gold market is influenced by the global market. As world prices rise, domestic prices follow.

Moreover, low interest rates offered by Vietnamese banks have increased the amount of idle cash circulating, prompting people to choose gold as a means to preserve asset value and gain price margins.

Measures to stabilize the gold market, such as limiting gold sales and strengthening market oversight, have underscored the crucial regulatory role of market authorities.

However, due to the gold market's substantial, unexpected expansion, the measures and tools in place have not been fully effective in achieving the established goals for stabilizing the market.

What are the potential consequences if this situation persists?

If the situation continues, the rush to buy and hoard gold will increase, leading to higher speculation and profiteering risks, or even creating a “gold bubble.” This fuels anxiety among buyers and sellers, undermining the trust of businesses, individuals, foreign investors, and international observers in management measures.

This suggests that the current management model has not achieved the necessary effectiveness or adapted adequately to the real situation.

Domestic gold prices are challenging to control, often mirroring global gold market fluctuations, and any sudden drops could lead to significant market disruptions.

Some believed that a change in mindset was needed in gold market management. What is your view?

A change in management approach is indeed necessary. Vietnam cannot control gold supply enough to stabilize prices, so it must align with global prices as the domestic market opens to international connections. Stability can only be achieved by minimizing the domestic-foreign price gap.

In addition, it’s necessary to modernize management thinking, particularly by reducing centralized control and shifting from administrative to economic regulatory measures. This includes making more effective use of gold import taxes, building a larger gold supply, and leveraging open market operations.

The gold market should also be opened up, such as by lifting the monopoly on gold imports, increasing the number of authorized importers under an appropriate regulatory framework. Authorities should also establish a gold trading exchange that meets international standards for quality and establish a suitable exchange management system.

Additionally, market transparency should be enhanced to effectively manage price differentials, along with increasing public awareness that gold is not an essential commodity and carries high investment risks, helping to reduce speculative surges in gold investment.

Banks should regulate deposit interest rates and expand other investment channels, such as real estate, bonds, stocks, or direct investment flows toward entrepreneurship and business development.

Furthermore, relevant agencies need to strengthen efforts against gold smuggling to enhance connectivity between domestic and global gold markets, reduce speculation and profiteering, and stabilize prices.

Gold-producing enterprises should also improve their capacity to supply the market, ensure compliance with legal requirements, and conduct transactions with full documentation to foster a healthy gold market.

Thank you, sir!