Unstable Gold Price

On 10^th January, the policy on tightening the gold market management came into effect. Gold bars are no longer sold in all gold shops like before but at only over 2,000 licensed businesses. Only 2,500 businesses were licensed to trade gold instead of thousands of hundreds businesses like previous years.

 

Since the very first day the new policy which stipulates that a network of gold bullion transaction rooms must be licensed under the provisions of Decree 24 came into effect, the price of gold has fallen sharply, and it is continuing to fall. The price of gold has fallen sharply for five days, from 10^th January. From the early hours of the morning of 10^th January to current time, gold price fell by VND1.7 million per tael. Due to the gap of VND5 million per tael compared with the world’s price, the domestic gold price was pulled down by VND2.5 million.

 

When the price is nearly VND44 million per tael, SJC was saved. Gold price has seen significant recovery, up to VND45.4 million per tael. After two days of recovery, from 16^th January, the domestic gold price tends to decrease. In 17^th January, SJC gold price in Ho Chi Minh City market as listed by the Saigon Jewelry Holding Company (SJC) is VND 45 million per tael (when purchased) and VND 45.3 million per tael (when sold). In Hanoi, at the same time, Phu Quy Jewelry Holding Company reported SJC’s gold price at VND 45.15 million per tael (when purchased) and VND 45.27 million per tael (when sold).

 

Notably, while the domestic gold price plummeted, the world price of gold fluctuated around a narrow amplitude, making the variance between the domestic gold price and the world gold price down to less than VND3 million per tael from nearly VND 5 million per tael.

 

The current fluctuation shows significant impact of policies on the market. The change of policy has made ​​the gold market dramatic though world prices virtually remain unchanged.

 

Gold shops always keep the gold transaction price variance large, normally from VND300,000 to 500,000 per tael to avoid risks.

 

According to the State Bank, that the gold price fell sharply is due to the reduced speculation thinking since gold bullion market was licensed to operate. People also feel secured when selling gold bars on a licensed market. On a licensed network, purchase price information is public, transparent and updated faster. Another important thing is that the licensed network also creates healthy competition among service units.

 

This competition trend has been found through variances in the buying and selling price between selling hubs. The competition between credit organizations and hub businesses is getting fiercer. The competition will also minimize the possibility of speculation. This is a healthy signal to the gold market.

 

To the involved credit organizations, low state limit, only 2 percent of the equity capital, is a technical barrier. Under the supervision of the state, the interests of client in the transaction will be guaranteed better than before.

 

Those who keep gold prices higher than VND5 million per tael compared with the world price are facing risks. Many people decided to stop purchasing gold since the price difference is even greater and the government officially broadcast messages to narrow the gap between domestic prices and world prices. The hubs which are not licensed also decided to sell gold to redirect capital and invest in other business. In the first week of the new regulations, the amount of gold sold increased, ranging from a few to several dozen taels to hundreds taels. As a result, transactions increased sharply, creating dramatic trading period of the gold market.

Domestic gold price is expected to continue falling due to the impact of the policy. According to the Chairman of the DOJI Jewelry Company, Mr Do Minh Phu, to ensure reasonable profit to the enterprise, the difference between the domestic price and the world price should be VND 500,000 to 700,000 per tael.

 

New management policy also increases the confidence of the market. Business network is restructured. Particularly, previously, there were 12,000 gold bar selling shops. When changes occur, those shops suddenly stop buying and selling, casting doubts to the market. Now that phenomenon is unlikely to happen since 2,500 licensed stores are large and having good potential. They are managed by the central bank, it is unlikely that they would shake hands and manipulate the market, pushing up price fevers. The State Bank has stated very clearly that it will participate in the gold market and be the last buyer and seller. The fever was controlled since people believe that the central bank will use its own resources to buy and sell gold to intervene if the price gets too high.

 

Transparency of the market increased. Licensed shops have to ensure infrastructure, public price and electronic price sign board updating automatically, so the information will be more transparent. Enterprises must take responsibility for the quality of goods sold and give customers receipt so that victims of fake gold will be limited.

 

Another factor making gold price lack of motivation is that commercial banks continue to buy gold in high price. The demand increases while supply is limited. The state is unable to produce enough gold, it does not import more at the same time. Saigon Jewelry Company alone cannot meet the demand of the people. Now the price in the country will come closer to the world price, as speculators and people have "released" gold.

 

However, 2013 is still a gold investment channels and highly appreciated around the world. Recently, the London Bullion Market Association (LBMA) predicted that this year, gold prices will rise by 5.1 percent, marking the 13th year of increasing in a row. In 2012, the price of gold is about 7 percent. While the stock and real estate is still gloomy, gold is still the traditional, safe and popular investment channel this year.