Open market: best way to stabilize gold prices

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Economist calls on the government to open the gold market as piecemeal price controls flounder

Gold bars are sorted at a company in Ho Chi Minh City. The central bank should allow firms to import gold without any limitations and then sell it at a reasonable price, an expert said.

Gold prices are on the rise, worldwide. However, values on the Vietnamese market have been positively meteoric.

Vietnam's gold price has jumped 34 percent so far this year.

Economist Nguyen Minh Phong from the Hanoi Socioeconomic Research Institute told Thanh Nien Weekly that the free import and export of gold could prove the best way to stabilize the domestic gold market.

Thanh Nien Weekly: What do you think about the government's measures to stabilize the gold market?

Nguyen Minh Phong: The State Bank of Vietnam (SBV) has allowed gold importation, and prohibited gold speculation. It's a good idea, but the implementation leaves something to be desired.

The state has only allowed a few businesses to import gold. These groups could create a monopoly if they begin fixing prices. In the long-term, the solution is to completely open the gold market to all legitimate traders.

Isn't there currently a monopoly on gold in Vietnam? Isn't that what's driving up the domestic prices?

This (gold price discrepancy) could occur in the short term due to the impacts of the supply and demand, as well as consumer psychology.

But if it lasts longer, the reason may be speculation, or price fixing (among gold traders).

Some say that, in order to stabilize the market, SBV, should sell off its gold reserves or borrow gold from commercial banks by issuing long-term gold bonds. What do you think?

I think it is unnecessary to do so. The SBV should allow firms to import gold without any limitations and then sell it at a reasonable price (based on world-market values). The problem is that free imports are not allowed. If the domestic market and the world market are linked, the gold price gap will narrow.

The state should also avoid the risky practice of borrowing gold from commercial banks to resell it to gold traders. In the current context of increasing gold prices, nobody dares to borrow gold.

The best option on the table is to simply open the market. At that time, free market forces will determine the price. Administrative measures or other interventions are not really effective, and even stunt the trade.

The State Bank of Vietnam's Circular No. 22 forbids commercial banks from selling off their gold reserves for dong and then loaning out the cash proceeds. The practice, it was feared, would reduce the domestic gold supply. Is this the reason for the gold price hike in the domestic market?

Circular No. 22 is effective in terms of keeping commercial banks safe, and helping reduce gold speculation because banks which take in gold deposits or issue gold loans, ultimately suffer losses.

Gold's rising prices have exceeded all interest rates. Due to the gold price hike, gold depositors may use their gold as security on their loans, and then trade gold to earn benefits, which may inspire a speculative fever. So, circular No. 22 is quite right.

What will happen to domestic gold prices?

In principle, Vietnam's gold prices should equal the domestic price plus the average profits of gold traders.

However, the price ultimately depends on how the SBV will or will not open up the gold market.

If the monopoly continues, the price must include the monopoly's profits, and those simply cannot be calculated. 


Gold is stuck in a kind of economic limbo in Vietnam. At the moment, nobody knows who is responsible for the gold market.

Some have argued that it should be considered a special currency; others say it should be treated like any other tradable commodity - one capable of affecting Vietnam's trade balance.

Vu Dinh Anh, deputy director of the Institute of Market and Price Research believes that this debate needs to be resolved before anything can be done to stabilize the market.

If it belongs to the monetary market, we will find a way to stabilize its price, Anh said. If it belongs to the goods market, we should change our approach to it entirely.

If gold belongs to the monetary market, we should have no problem spending billions of dollars (even tens of billions of dollars) importing gold as a form of special currency. In that case, shifting from dollars to gold should not affect the trade deficit.

If gold is a tradable commodity, we have to consider each dollar spent on importing the metal, according to Anh.

If gold is a currency, gold imports should not affect Vietnam's balance of payment and the precious metal should be traded as gold-backed bank notes.

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