Gold glitters as an investment option

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Gold prices have remained high in recent months and the precious metal looks set to stay on its upward trend. Do Minh Phu, vice chairman of the Vietnam Gold Business Association advises caution on short-term trading, however.

Worries about the debts of European banks have had people rushing to purchase gold, pushing up prices. The price hike in the world market to US$1,246 per ounce on September 7 strongly affected the domestic market, and fluctuations happen even more quickly here, Phu said.

Thanh Nien Weekly: It is said that businesses have recently exported too much gold, leading to a scarcity here. Is this true?

Do Minh Phu: I do not think that this is true, because the market now is rather unruffled. If there was a scarcity, there would be the phenomenon of people rushing to purchase or sell gold. The current price hike is an opportunity for people to sell gold.

There are two opinions.

The first is that the gold price is high now, but it has not reached its peak, which may be $1,300 per ounce, according to many experts. And with the price in the world market, it is not difficult for prices in the domestic market to reach VND30 million per tael. So, many people think that the current price is not a good one to sell at. Meanwhile, many others dare not purchase it because of risk worries.

The second is that gold prices in the domestic market, at an exchange rate of VND19,500 per US dollar, are even lower than world prices. So it cannot really be said that gold is scarce.

The price hike has prompted many investors to conduct short-term trade in gold to earn profits. What would be your advice to them?

Investors often seek the best chance to earn profit, so they can think of trading gold. However, with the current gold price fluctuations, this is not simple. At the moment, a V-shaped graph is possible in only two hours. Gold prices in the domestic market closely follow those in the world, so short-term investors should have a thorough grasp of the law (of gold price fluctuations).

Fluctuations in world gold prices happen mainly at night time in Vietnam, when New York's gold market is operating. At that time, the domestic market is closed, so it is difficult for us to consider short-term trading in gold at that time. Gold price fluctuations in the domestic market are often ruled by what happens in New York. Thus, short-term investors should be very careful, as the possibility of losses exists.

What about the correlation between the gold market and other markets, especially the US dollar?

There is a clear correlation between the price of gold and those of some strong foreign currencies. In the past, gold prices often increased when the dollar prices fell. However, the situation has changed now, as gold prices also depend on prices of other strong foreign currencies such as the euro.

Gold prices in the domestic market increased immediately after the State Bank of Vietnam devalued the dong (by 2 percent against the dollar last month). Most of the gold in Vietnam is imported so traders calculate its prices under the dollar-dong exchange rate.

Gold and dollar prices are also closely related because some credit organizations use both as a tool to guarantee their assets. Thus, gold prices will rise when dollar prices rise.

What is the most effective investment channel now, stock, property or gold?

The stock market is on the wane, and its recovery is very slow. Although the property market has warmed up, it is not easy to invest in the market, because of its big capital requirements and low liquidity.

Meanwhile, there are many opportunities for investors when trading in gold, as gold prices are expected to increase in the medium and long term. Last year, gold prices rose much higher than the inflation or banking deposit rates. Gold prices have increased by some 16 percent since early this year, and the rise was over 20 percent last year.

Obviously, gold prices depend on many factors in both domestic and overseas markets, so investors should be careful when conducting short-term trades in gold. In the medium and long term, we agree with the prediction of many experts that gold prices will increase further.

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