In the exchange session of the new year, world gold price increased strongly by 1.1 percent to US$1,677.6 /oz. Domestic gold price also rose by over VND 300,000/tael compared to the closing price of last year. The first signs seem to indicate a promising year for gold.
It was previously believed that despite the strong growth last year, gold still has strong potential in the context of many threats of the world economy and politics. Gold is a save haven and promises a high profit in 2013.
Expected to peak in 2013
Last year gold experienced several bouts of fever. In the domestic market, Decree no. 24 requiring banks to stop depositing and lending gold has immensely impacted on the market. Investors, especially banks must suffer severely consequences of price fevers, and loss of VND1,700 billion from gold investment of Asian Commercial Bank (ACB) is just a typical case.
In August 2012, a massive cash flow into the gold market pushed up gold price hour by hour. Price increased rapidly, gold was exchanged effervescently. People stood in long queues to buy gold at all costs. The second fever, from the beginning of October was triggered by banks, because they were active buyers in the market and contributed to the aggressive gold price growth in the domestic market.
The gap between domestic and world gold price is huge, sometimes is VND 5 million/tael - an incredible difference. Besides, almost throughout the year, domestic gold price is VND 2 million - 4 million/tael higher than the world one, “missing” the direction of Governor of the State Bank of Vietnam (SBV) that the gap between domestic and world gold price is only up to VND400 thousand/tael.
Price fevers and huge gap have shown the large profits of speculators, as well as inappropriate management.
Entering 2013, speculators and people still prepare psychologically for new gold rushes which are expected to be hotter than those in 2012 because gold fevers have become a normal phenomenon in the last few years.
Impacts from changes in the world gold prices in 2011 and 2012, gold price peaks… till now 200 - day average world gold price runs around US$1,660/ounce.
Many experts predict that gold price will be volatile in 2013. According to his analysis, Mr Vu Minh Chau, Director of Bao Tin Minh Chau Gold and Silver Company, gold price in USD has increased about 17.5 percent over the past 10 years. After a year of slow growth, gold price usually has strong breakthrough. Therefore, it is likely that gold will experience a fever in 2013. Basically, gold market is heading to a booming ear with an increase of over 20 percent.
International experts also have positive comments about gold price this year. The Bank of America said: “We believe that loose monetary policy of FED and ECB will push up gold price higher”. The peak in 2013 is predicted by this bank to be US$2,000/ounce, and to be US$2,400/ounce in 2014. Analysis expert of HSBC affirmed the probability of gold price increasing to 1,850/ounce in average, closely to the price of US$1,840/ounce predicted by Credit Suisse Bank. Deutsche Bank of Germany forecasts gold price will increase US$2,000 in next year.
Reasons for those predictions are loose monetary policy and strong gold demand in the world. The fact has shown that world gold price tends to increase in the long term, is getting higher year after. In the period of 2010 – 2011, gold price continuously breaks records due to quantitative easing (QE) of FED, especially gold is believed to be a save haven in the context of global economic downturn.
Potential risks for management policies
Revising the price trend and assessment research of financial experts, gold is suggested to be an attractive and safe investment channel. However, Vietnam’s market possesses its own characteristics of management mechanism, associated with price changes and specific risks.
Despite the increase world price trend, the gap between domestic and world gold price is very big, and investors will suffer from loss if the SBV performs the strong policy intervention in the market, helping diminish the gap between domestic and world gold price. Especially when the new issued maturity of short - term gold deposit certificates will end on June 30th 2013.
In 2012, many people were benefited by the higher domestic price compared to the world one, but this situation hardly happens this year. Currently, domestic gold price is always higher than the world one by VND 3 - 5 million/tael.
According to Mr Tran Quoc Hung, senior expert of Vietnam Gold Business Association: Auto - surfing investors should be very careful because of potential risks from both the fluctuation of the world gold price and the policy.
However, in these unfavorable conditions, gold is still outstanding. Real estate, the first priority investment channel of Vietnamese people, is frozen with over large inventories of products and huge bad debts which are unexpected to resolve. After the decrease trend in 2012, securities have prospered for two weeks, but they are still risky. Gold becomes more shining in this current difficult period. In normal conditions, for investments, benefits are more concerned than liquidity. But, when the economic situation is difficult, liquidity has more consideration, so gold possesses dominant advantage.
Bao Chau
Vietnamese
