Gold Frenzy: High Wave, High Risk

Domestic gold market was lacklustre most of the time in the second quarter of 2016 and retail prices were usually quoted lower than global rates. Even, the Brexit voting (the referendum of the United Kingdom on the termination of EU membership) did not lift domestic prices to the international plane. But, the bullion price jumped more than 8 per cent in less than a month. This high upward spiral was hardly seen in the past two years and the domestic rate thus left world prices behind.

 

The price of the precious metal peaked VND40 million per tael on July 6 but then quickly retreated to anchor at VND37 million per tael.

 

Gold experienced a rarely seen fever to climb to the high of three years. The bullion price added VND2 million on July 6 after going past three sentimental thresholds of VND36 million, VND37 million and VND38 million per tael in three days earlier. Peaking at VND39.8 million per tael, the gold price jumped VND4 million in just three days.

DOJI gold price chart showed that this was the highest price rate since June 2013. The price increased by VND6 million per tael in just one month. Compared with the world rate, the local price was VND2.75 million per tael higher.

 

A gold trader on Tran Nhan Tong Street in the downtown of Hanoi said bullion sales during fever days increased by 2-3 times more than other days. Most buyers opted for small value and very few took 30 - 35 taels a day.

 

Price hike prompted many traders to sell their bullions to lock in profit, particularly those buying at VND33-34 million per tael.

 

Risks are posed to those betting to buy at VND40 per tael, not profits in the horizon as they expected, as the price dropped dramatically from the three-year peak. At least, they lost VND3 million per tael to date.

 

The gold frenzy occurred worldwide after British people voted for leaving from the European Union (EU). However, the correlation between the domestic and global gold markets was very weak since the State Bank of Vietnam (SBV) banned the import of bullions. But, the volatility of world gold markets still impacted domestic prices more or less. Since the central bank held tight the gold market, domestic prices usually moved at a slower pace than the world.

 

In addition to impacts from the global market, the bullish sentiment on the domestic market boosted the purchasing power of gold from the public and investors. Gold holders did not sell their assets because they expected for higher prices while people with unemployed cash rushed to purchase the precious metal on hopes of higher values. Without additional supply for a long time, the bullion got scarcer.

 

Gold rush was stopped by the message from the SBV late July 6. According a statement from the central bank, the domestic gold price surged dramatically on July 5 on bullish sentiment. The central bank affirmed that it will monitor the market and prepare all possible plans and enough resources to intervene into the gold market when necessary. The intervention for market stability is consistent with the Government’s Decree 24 on gold market management.

 

As such, that volatility was believed to be short-lived and lack of clear trends. Multidimensional information from the world market affected the domestic market sentiment. Many experts repeatedly warned investors of acting carefully to avoid falling into a disadvantaged position.

 

Global price movements showed high risks of gold hoarding. On July 12, spot gold in New York lost US$21.9/oz, or more than 1.6 per cent, to US$1,333.7/oz. At 10:00 am July 13 (Hanoi time), spot gold in Asia sank extra 70 cents/oz from the US closing price to US$1,333/oz. Domestic gold price was weighed down by world slumps. SJC gold retail price was VND1-1.2 million per tael higher than the world rate.