NDO – Complex developments in the gold market are adversely affecting the safety of financial and monetary markets and public sentiment. The Government has directed the State Bank of Vietnam to implement stabilization tasks and measures rigorously, fully, effectively, and promptly to develop a stable, sound, transparent, efficient, and sustainable gold market. A Nhan Dan Newspaper reporter interviewed Prof. Dr. Tran Tho Dat, Chairman of the Scientific and Training Council at National Economics University (NEU), on this issue.

Prof. Dr. Tran Tho Dat.

Decree 24 Has Fulfilled Its Mission

Reporter: One key aspect of gold market management policy in the coming period is the Government’s planned amendment of Decree 24/2012/NĐ-CP on the management of gold market activities. In your view, why must this Decree be amended, and what difficulties might arise in the amendment process?

Prof. Dr. Tran Tho Dat: In my view, state regulators face a difficult choice between taking the easy route of managing the gold market through administrative tools and directives, as under the current Decree 24, and allowing it to operate through market mechanisms so that it develops soundly, contributes to macroeconomic stability, and balances the interests of the State, businesses, and the public.

Regulators fear that a shift toward market mechanisms in line with international practices could destabilize the gold market if it is not managed well. Decree 24 has clearly met expectations by helping stabilize the domestic gold market even when global gold prices fluctuate sharply. In addition, the economy’s reliance on gold has been curbed.

However, current market conditions also show that certain provisions of Decree 24 need to be reviewed and adjusted as necessary after more than 10 years of implementation. It is time to change the approach to managing the gold market.

Maintaining gold market stability remains the right objective, but tight management does not mean relying on administrative measures. Rather, it means establishing transparent standards that are necessary and sufficient for implementation and for effective oversight by competent state agencies.

Reporter: What is your view on the proposal for the State to end its monopoly on gold bar production?

Prof. Dr. Tran Tho Dat: This is one of the issues attracting the most attention in the amendment of Decree 24. Although reliance on gold has been reduced, demand for gold bars in Vietnam remains high, accounting for 70% of gold consumption. The State needs to consider whether to maintain its monopoly on gold bar production in order to keep pace with the trend toward gold market liberalization that is quite widespread in other countries in the region.

Today, gold still holds an important place in the national economy and in people’s material and spiritual lives. Their desire to own gold as an asset at a reasonable price relative to global gold prices is therefore legitimate and needs to be protected.

The State should therefore consider exploring the possibility of licensing qualified businesses to produce gold bars to balance supply and demand and meet people’s needs for investment and gold accumulation.

A Turning Point in Gold Market Management

Reporter: Recently, the Government has issued numerous urgent directives on stabilizing the gold market, yet gold prices continue to fluctuate sharply amid complex market developments. What do you think are the causes?

Prof. Dr. Tran Tho Dat: As we can see, whenever the Government or the State Bank of Vietnam signals that it will intervene in the SJC gold market, domestic gold prices fall rapidly. This shows that the market is highly sensitive to information indicating that regulators will adopt a more market-oriented approach rather than rely on administrative management.

But the reality is that if we do not take decisive action after such messages, SJC gold prices rise again to an even higher level. Regulators’ determination to translate policy messages into action is now becoming increasingly clear and concrete, as demonstrated by the State Bank of Vietnam’s commitment to resume auctions of SJC gold bars to increase supply and regulate supply and demand.

The Government has made considerable efforts, and a turning point in gold market management lies ahead when the State ends its monopoly on gold bars.

Global gold prices have now risen by nearly 20% since the beginning of the year, while domestic gold prices have also fluctuated sharply and diverged significantly from global prices, particularly for SJC gold. Can investing in gold at this point still generate high returns? The Government and monetary policymakers need to provide information about recent gold price fluctuations so that people can understand and weigh them before deciding to invest in gold.

Amid the current volatility, gold may be a safe haven, but choosing it as a vehicle for speculation entails considerable risks, as extensive data show that gold has not been a good, profitable investment recently. The State also does not encourage people to hoard gold; this is not an investment channel for a modern economy.

Although gold prices have risen very sharply recently, statistics from research organizations show that gold has still not been the investment channel offering the best returns over the past several years.

Since the Government issued Resolution 24, domestic gold prices have generally tracked global gold prices. Only since June 2020, as global gold prices have trended upward because of geopolitical instability, has a large gap emerged between domestic and global prices, and this gap has been limited to SJC gold.

In particular, the sharp surge in global gold prices has occurred over approximately the past three months, as gold has become a safe haven and gold hoarding has increased, pushing prices very high.

According to World Gold Council data, per capita gold consumption in Vietnam in 2022 fell sharply to just half its peak in 2011, when per capita gold demand was approximately 1.2 grams.

Although no official figures are available, gold holdings among the public are estimated at approximately 400 metric tons. Recent survey data from the International Gold Council show that Vietnamese people’s preference for gold is among the highest in the world: 72% of respondents said they would continue to buy gold, compared with more than 50% in other gold-favoring countries such as China and India.

If people do not invest through other channels in production and business activities but instead continue to increase their gold purchases, these resources will remain idle in private hands, which does not benefit the economy. In the long term, the Government also needs measures to make other asset and financial investment channels more attractive, giving people alternatives and reducing their focus on gold. But changing the habit of hoarding gold requires greater confidence in the domestic currency.

Reporter: As you have noted, current policy changes will mark a turning point in gold market management. Do you think managing the gold market today involves more favorable conditions or more difficulties than when the Government issued Decree 24/2012/NĐ-CP 12 years ago?

Prof. Dr. Tran Tho Dat: I believe conditions are more favorable now because in 2012 the economy was heavily reliant on gold. Without administrative measures such as Decree 24, the effectiveness of monetary policy would have been seriously affected, and gold prices would have affected other macroeconomic variables, particularly exchange rates and inflation.

But the situation is different now. Vietnam’s economy has consistently maintained macroeconomic stability, kept inflation below 4%, and held exchange rate fluctuations within manageable limits. We can therefore see that recent sharp fluctuations in gold prices have had little effect on exchange rates and have not caused macroeconomic instability.

Moreover, gold is not a means of payment, and public demand for gold purchases has also declined considerably, although it remains high.

Thank you for the interview!

TO HA

Link: https://nhandan.vn/minh-bach-hoa-de-binh-on-thi-truong-vang-post805843.html

This is an automated translation. If you notice any errors, please contact the Department of Communications, National Economics University at phongtruyenthong@neu.edu.vn.