Gold fevers in recent days, dubbed "gold madness" by the press, claimed immediate losses from many people ignorant of gold and the economy as they purchased the bullion at very high prices, even considerably higher than world rates. The question is why people do not buy gold at lower prices, but whenever the precious metal gains in price?
The madness of gold weakened the local Vietnamese dong (VND), adversely impacted the foreign exchange market, imbalanced forex supply and demand, challenged public confidence, and threatened the stability of the forex market that the State Bank of Vietnam (SBV) was striving for.
From the recent gold rush, the public once again pointed at existing shortcomings in gold market management policy and raised disagreements to the draft Decree on Gold Market Management that the SBV announced some months ago, because as soon as the central bank announced the new draft decree (replacing the old draft decree with the basic content of eliminating the gold bar trading market, people are prohibited from purchasing gold bars), gold bullion trading increased. Besides, the new draft does not have effective anti-speculation measures and does not end the dominant status of gold in the economy.
The Vietnam Gold Business Association, specialists and economists proposed setting up a centralised gold trading floor managed directly by the SBV. This aims to interconnect domestic and global gold markets, liken domestic and global prices, and prevent gold rushes. People holding gold certificates will be able to trade much more conveniently than when they keep real gold; thus, the liquidity of gold trading will be higher. However, the Vietnam Financial Investors Association (VAFI) pointed out that the formation of a centralised gold trading floor only differed from free gold trading floors in the following aspects: gold trading floors are integrated into only one, and operated according to the State rules. They are also different in the percentage of financial leverage. In nature, there is no change from the old mechanism.
According to the VAFI, most people trading gold on gold trading floors suffered losses. They even lost nearly all the money spent on gold. Perhaps, thousands of gold investors incurred huge losses because they traded on gold trading floors. Only operators of gold trading floors gained super profits. The establishment of a centralised trading gold floor will not be able to prevent aforesaid consequences, meet targets and bring in economic benefits. On the contrary, it may worsen economic instability.
In practice, gold trading is a sort of currency trading, a sensitive business, which affects the security of national currency and is, in some cases, the source of exchange rate instability, inflation and confidence erosion. Thus, it requires immediate, effective control policies. The recent gold rush was not caused by macroeconomic instability because macroeconomic indicators were getting better. Speculators took the advantage of global volatility and lax domestic management over the gold market to create “waves” of demand, strain the monetary market in a short time, and impact exchange rates. Mr Nguyen Hoang Hai, VAFI Secretary General, said this should be quickly put to an end.
According to the VAFI, to have a practicable and effective decree on gold trading market management, policymakers need first of all to define specific objectives for the policy.
Accordingly, Vietnam needs to shift bullion kept by the public into manufacturing fields and increase forex reserves by economic measures on the principle that practical interests of the people are ensured: The amount of gold kept by the public can only gradually decrease, not increase. At the same time, there must be solutions to address the roots of gold speculation and eliminate any gold fever. According to the VAFI, domestic gold prices will move in tune with global rates and price movements will not engender gold rush or affect foreign exchange policies. The recent volatility of gold prices has no impact on forex policies in most countries in the world; Vietnam may be the only exception.
"Vietnam is a poor country and it needs capital and foreign currencies to develop its economy, but tens of billions of US dollars are “frozen” or “inactive.” Gold and foreign currencies must be converted and flow into manufacturing sectors,” Hai concluded.
Thu Hang
Vietnamese
