Kinhte.congthuong.vn: Will Gold Prices Meet Regulators’ Expectations? Assoc. Prof. Dr. Nguyen Thuong Lang
20/05/2024 2024-05-20 7:51Kinhte.congthuong.vn: Will Gold Prices Meet Regulators’ Expectations? Assoc. Prof. Dr. Nguyen Thuong Lang
Kinhte.congthuong.vn: Will Gold Prices Meet Regulators’ Expectations? Assoc. Prof. Dr. Nguyen Thuong Lang
Economist Assoc. Prof. Dr. Nguyen Thuong Lang, School of Trade and International Economics, National Economics University (NEU), shares his perspective on the recent “untamed horse” of gold prices and measures to stabilize the gold market.
Is there any “collusion” between global gold prices and gold prices in Vietnam?
Gold prices are enjoying a golden age and a cycle of relatively strong increases. In 1944, 1 ounce of gold was worth USD 35; today, gold prices have risen approximately 70-fold over 80 years. This is the highest gold price in history. This affirms gold’s status as true money compared with banknotes and other monetary instruments.
High global gold prices indicate considerable instability in the world economy, significantly declining confidence in instruments for preserving asset value, and a substantial risk of inflation “exploding” again. The freezing of assets in the United States under sanctions arising from conflicts and strategic competition requires a change in thinking about strategic reserves, with gold receiving the highest priority as the safest option.
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| The gold market needs stabilization measures to avoid putting pressure on economic growth. (Illustrative image) |
Furthermore, gold functions as a global currency, making its international circulation easier than that of other assets, such as real estate, other financial assets, and derivatives. Gold’s superior power to preserve asset value means that its continuous price increases are consistent with economic laws. Without an effective global coordination mechanism, gold prices will continue to rise, as gold is not an essential commodity requiring strict price floors and ceilings.
How is this “power” of gold prices manifested in the Vietnamese market?
With the additional effects of speculation and herd mentality, gold prices will likely continue their upward momentum. Moreover, demand-stimulus policies through monetary easing, particularly significant cuts in interest rates in Vietnam, have pushed domestic gold prices above global prices, while regulations establishing a national gold brand give that brand a monopoly position, further driving prices sharply upward. Restrictions on gold imports also significantly constrain supply despite the economy’s high degree of openness, while there is no gold exchange to effectively balance supply and demand and regulate gold prices.
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Assoc. Prof. Dr. Nguyen Thuong Lang, Senior Lecturer, School of Trade and International Economics (NEU) |
Considering the economy as a whole, under the equilibrium equation in which total prices equal total value, if the value allocated or created is not commensurate, prices, including gold prices, must rise to restore balance. Fluctuations in Vietnam’s gold market are entirely consistent with this law. When gold prices surge, under the law of one price, the Vietnamese dong will decline in value, even depreciating in relative terms. This may diminish the role of monetary policy and place a burden on fiscal policy, potentially leading to macroeconomic instability.
Will actual gold price movements meet regulators’ expectations?
The Government’s measure to increase gold supply through auctions in recent rounds has been relatively cautious. This measure aims to stabilize sentiment and prevent herd mentality. However, given its small economic size within the world economy, Vietnam cannot curb the decline in global gold prices and can only try to narrow the gap between domestic and global prices. Further supply increases are necessary and should be maintained, even with very high starting auction prices. This is a relatively effective channel for absorbing cash in circulation. At the same time, gold imports should be expanded, and regulations that give a particular gold brand a monopoly advantage, resulting in unequal competition lacking substance, should be removed.
The gold market should be opened boldly with appropriate regulation, transaction volumes made transparent, and a reliable, large-scale gold exchange established. The spread between domestic gold prices and import prices should be regulated to prevent arbitrary sentiment-driven pricing, efforts to combat profiteering through speculation should be strengthened, and close management of the gold market should receive attention.
In the long term, markets for other assets, such as real estate and bonds, should continue to be developed, with a policy direction toward appropriate interest rate increases to reduce excessive interest in gold and redirect money from gold into other investment categories. Programs and projects should attract investment and high technology, such as semiconductors, green transition projects, digital transformation, energy transition, innovative startups, and infrastructure breakthroughs. More coordinated and decisive efforts to promote investment across diverse sectors will both ease pressure on demand for gold and ensure sustainable economic development.
Thank you!
Do Gold Prices Now Have “Favorable Timing, Favorable Conditions, and Human Harmony” to Sustain Their Upward Momentum? The first-quarter 2024 economic report by the Vietnam Institute for Economic and Policy Research (VEPR) observes that low interest rates, as seen during 2021–early 2022 or from late 2023 to the present, provide an ideal environment for fueling a surge in any asset class. Moving into 2024, fueling a gold surge has become even easier, as global gold prices have risen amid geopolitical instability, while the stock and real estate markets are not hot enough to attract money as they did in 2021–2022. Thus, it can be said that both “favorable timing and favorable conditions” are in place to fuel a gold surge. What about “human harmony”? This factor may be even simpler. Crowds are easily attracted by surges. The higher the surge, the more easily it draws in money. Asset bubbles always form through this kind of “herd” mentality. Instead of the long lines of people waiting to open stock trading accounts seen in previous years, many people have patiently lined up at gold shops. With “favorable timing, favorable conditions, and human harmony” all in place, nothing can stop the surge. “In the current context, administrative measures are particularly important for ensuring transparency and preventing price manipulation. Inspecting the gold market, requiring the use of invoices, and investigating manipulation will not require spending foreign exchange reserves on gold imports, yet can deliver highly effective, immediate results. In addition to administrative measures, monetary tools such as interest rates also play an important role in preventing asset bubbles, including gold bubbles,” the VEPR report notes. |
This is an automated translation. If you notice any errors, please contact the Department of Communications, National Economics University at phongtruyenthong@neu.edu.vn.
