However, amidst this activity, a perplexing question emerges: why does the gold supply increase while the disparity between domestic and global gold prices remains volatile and unrelenting? To delve deeper into this conundrum, Saigon Investment sat down with Dr. LÊ ĐẠT CHÍ from the Ho Chi Minh City University of Economics.
JOURNALIST: - Sir, how do you explain this imbalance in supply and demand?
Dr. LÊ ĐẠT CHÍ: - The pricing of any commodity can be disrupted by a shortage on either the supply or demand side. In the case of gold, the imbalance arises primarily from the supply side, particularly in the supply of SJC gold bars. Therefore, before delving into potential solutions to address this supply issue, it's imperative to understand the dynamics of gold demand.
We often focus on consumer demand for gold, but it's crucial to recognize that the majority of gold demand originates from gold trading companies. Unfortunately, there's a lack of official data available from these companies, as most of them are not publicly listed and thus don't provide financial reports. However, it's conceivable to gauge the extent of their gold holdings by examining the inventory growth of prominent gold brands, provided that tax authorities employ statistical methods to track this data over time.
For instance, if we examine the financial records of a gold trading firm listed on the stock exchange, we'll likely observe a staggering 100% increase in their gold holdings over recent years. This indicates that the demand for gold primarily stems from these trading companies rather than individual consumers. Consequently, this phenomenon creates scarcity and disrupts the balance between gold supply and demand, resulting in inflated gold prices well above global benchmarks.
Hence, before addressing issues related to domestic gold supply, it's imperative to address the excessive demand driven by speculative hoarding within the gold trading company ecosystem. These companies often engage in large-scale speculation, leveraging significant cash flows to purchase gold through credit agreements backed by mortgaged gold assets. Consequently, there's a mismatch between demand and supply within this system, leading to unsustainable pressures on the gold market.
Furthermore, it's worth noting that despite the State Bank's decade-long embargo on gold imports, gold trading companies have consistently expanded their gold reserves. This raises pertinent questions about the sources of gold procurement for these companies, particularly given the absence of authorized imports. It's plausible to infer that a substantial portion of this gold originates from illicit channels, indicating potential smuggling activities.
This underscores the urgency for thorough investigations by the Ministry of Public Security into the operations of gold trading companies. Clarifying the origins of their gold holdings is paramount in identifying and addressing any illegal activities, thereby restoring integrity and stability to the gold market.
- Therefore, can it be concluded that the State Bank of Vietnam has been unsuccessful in regulating supply and demand in the gold market?
- Indeed, relying solely on the State Bank of Vietnam's efforts to bolster gold supply through auctions is unlikely to offer a viable solution. In instances where the market faces shortages of gold bars, gold trading companies have the option to convert raw gold into SJC gold bars.
Currently, there seems to be a misunderstanding that the exclusive production of gold bars by SJC creates a shortage, leading to numerous proposals to abolish this monopoly. It's important to recognize that each country must standardize gold quality and have a specific type of gold circulating in its economy, hence SJC gold bars serve as the standard in Vietnam. However, the issue lies in the fact that the production of SJC gold bars is restricted to the State Bank's gold source, which is not a reasonable approach. Instead, it is essential to allow gold trading companies to process their gold into SJC bars. This would diversify the sources of SJC gold bars and contribute to additional supply, thereby helping to balance the market without requiring intervention from the State Bank of Vietnam.
If the State Bank wishes to intervene, it must address both the supply and demand sides of the gold market. Presently, the State Bank only intervenes on the supply side, rendering its efforts ineffective. This unilateral intervention approach merely injects more gold into the economy, leading to loss of foreign currency and diminishing the country's financial potential and security. In my view, the State Bank of Vietnam's one-sided intervention policy serves only to convey the impression of taking action without actually addressing the underlying issues.
- So, there has been manipulation of the gold market. How to address this issue?
- To address this, we need to focus on impacting the key players in the market, namely the gold trading companies. It appears that the government has recognized the urgency of the situation and has taken action by requesting the intervention of the Ministry of Public Security and the Government Inspectorate. This intervention involves thorough inspections following the purchase of gold inventory by these trading companies.
These inspections aim to identify two main problems: Firstly, whether the gold being purchased is of unknown origin, which could indicate illicit activities such as smuggling. Secondly, it is likely that these companies have engaged in speculation and hoarding by continuously increasing their net purchases of gold. If there is indeed a significant increase in net buying, it is crucial to clarify the source of the funds used for these purchases.
Moreover, it is necessary to investigate whether these companies are obtaining credit capital from commercial banks to finance their gold purchases. If such practices are identified, the State Bank should consider taking measures to eliminate this lending activity, similar to its actions concerning lending to individuals. By addressing these issues and implementing appropriate regulations and oversight, we can work towards reducing manipulation in the gold market and promoting fairness and transparency.
On the part of the State Bank, a post-check of the source of funds used by commercial banks and gold trading companies to purchase gold after the auctions would be sufficient. This measure would likely lead to a decrease in the number of participants in gold bidding. By implementing this technical solution, the State Bank could conduct numerous gold auctions as a means to "communicate psychology" and effectively address the issue.
In conclusion, by adopting a comprehensive approach that involves regulatory measures, oversight, and targeted interventions, we can work towards stabilizing the gold market and mitigating manipulation.
- Thank you very much.
