In an effort to rebalance the domestic gold market, the State Bank of Vietnam (SBV) recently initiated auctions for SJC gold, aiming to bridge the gap between local and global prices. However, these auctions have yielded unexpected outcomes, failing to achieve the desired stability.

Contrary to expectations, each auction has seen gold prices surge rather than decline, fueling a buying frenzy among consumers. The allure of SJC gold and 9999 rings has intensified amid rising demand and limited supply, prompting some businesses to impose purchase restrictions and even suspend trading due to inventory shortages.

May 10 marked a significant milestone in the volatile realm of gold trading as prices for SJC-branded gold bars soared to an unprecedented peak, surpassing VNĐ92.4 million (equivalent to US$3,630) per tael. Despite a slight dip in prices to VNĐ91.3 million per tael during the morning session on May 11, the gap between domestic and global gold prices remained substantial, standing at VNĐ19 million – twice the pre-auction margin of VNĐ9.53 million a tael.

Analysts believed the persistently high bid prices have compelled auction winners to maintain elevated selling prices in order to recuperate their investments in the ensuing days.

In the April 23 auction, the highest winning bid reached VNĐ81.33 million per tael and on the May 8 auction, it was VNĐ86.05 million per tael, underscoring the persistent bullish sentiment within the gold market.

The post-auction price hikes have raised doubts about the efficacy of the central bank's intervention strategy. With several sessions canceled (three out of five) due to insufficient bids and only a small quantity of gold entering the market in successful auctions (just 6,800 taels which were 8 per cent of the total amount put up for auction), it's evident that the current approach is inadequate.

As uncertainty looms over the future direction of gold prices, investors find themselves torn between holding onto their assets and liquidating them. With geopolitical tensions and banking system strains adding to the complexity, predicting market trends remains challenging.

In response to mounting criticism, regulators have vowed to address the issue through regulatory reforms, dismantling monopolies, and bolstering oversight. However, these measures have yet to quell market volatility or assuage investor apprehension.

Dr. Vũ Đình Ánh, an esteemed economic expert, commended the SBV's intervention via gold auctions but he cautioned that such measures could exert pressure on exchange rates. Nonetheless, he underscored the normalcy and necessity of utilising foreign currency for gold imports in foreign exchange management, particularly given gold's significance within foreign exchange reserves.

Looking ahead, Ánh predicted that both the gold market and exchange rates will continue to face significant pressures, driven by various factors including the US Federal Reserve's interest rate policies and alterations in the structure of foreign exchange reserves among major economies.

According to the World Gold Council, central banks globally exhibited a strong interest in gold, setting a new first-quarter record with 228 tonnes acquired – a 68 per cent surge over the five-year quarterly average. The gold market in early 2024 saw an unprecedented increase in demand driven by substantial physical demand in China, the world's second-largest economy, recording a 68 per cent year-on-year increase.

To mitigate long-term market shocks and alleviate pressure, Ánh advocated for the implementation of more frequent gold auctions and proactive forecasting to navigate fluctuations effectively. Additionally, he emphasised the imperative of reassessing exchange rate policies to facilitate timely and appropriate interventions.

Economist Nguyễn Minh Phong has suggested that the central bank has more than just two options (continuing or halting auctions). They can also organise auctions with specific rules, conditions and prices tailored to market needs and state goals. This would require collaboration between experts, gold businesses, and banks to set common objectives for auction organisation and market management.

However, Phong emphasised that gold auctions are only a temporary fix. To address the issue in the long term, he suggests amending Decree 24 to deal with monopolies in SJC gold bar production and export. He believes that once gold is reintegrated into the market, the State Bank shouldn't directly manage supply and demand. Instead, it should focus on ensuring that supply meets demand, thus narrowing the gap between domestic and global gold prices.

Government requires special inspection over gold market

The Government has requested an immediate inspection over gold bullion trading in an attempt to stabilise the domestic gold market that has witnessed a sudden price rise in recent days.

The Government Office has issued a document outlining Deputy Prime Minister Lê Minh Khái's directives from a recent meeting on the gold market. He has instructed the State Bank of Vietnam and relevant agencies to rigorously, seriously and effectively continue implementing solutions for managing the gold market.

Additionally, there is an urgent call for a thorough review and assessment of SBV’s implementation of gold market management measures, aimed at stabilising and balancing the gold market in accordance with the law.

Attention should be paid to avoiding ‘goldenisation’ of the economy as well as the negative impact on macroeconomic stability and national financial and monetary security, Khái stressed, urging relevant agencies to report the results to the Prime Minister in May at the latest.

Other requests included enforcing strict oversight over gold bar production and trading to combat illicit activities such as smuggling and fraud, immediately reporting any legal breaches to appropriate authorities for action and regularly reviewing and assessing the implementation of Decree No. 24/2012/NĐ-CP to suggest effective market management strategies and policies, with stringent penalties for any violations in gold trading. — VNS