Fast forward to the present, with the world gold price surpassing USD 2,054 per ounce and the domestic gold price reaching VND 74.4 million per tael, the difference between domestic and world gold prices has ballooned to around VND 13 million per tael. This raises questions about what Decree 24 has achieved, what it has lost, and what aspects need rectification.
Persistent Inadequacies
The noticeable increase in the difference between domestic and world gold prices, ranging from VND 2 million to sometimes over VND 18 million per tael, along with disparities in buying and selling prices exceeding VND 500,000 and at times surpassing VND 2 million per tael, underscores the inadequacies of Decree 24. Saigon Investment has previously highlighted these issues in various analysis articles.
Considering two scenarios for world gold prices offers insights into the dynamics at play. In Scenario 1, where gold prices soar to new heights, exceeding all-time peaks, and domestic gold prices continue rising, gold trading companies adjust their selling prices based on the surge in world prices. The domestic gold price, influenced by increased demand and profits from previous investments, escalates more robustly than the conversion from the world gold price, widening the gap between domestic and world prices.
In this situation, gold trading companies, to mitigate the risk of a reversal in world gold prices, expand the difference in gold buying and selling prices, limiting the quantity of gold sold. This strategy allows them to purchase from gold sellers and sell to new gold buyers, with the difference in prices constituting their profit. However, it raises questions about the gold inventory held by these companies and concerns about potential depreciation.
Scenario 2 contemplates a decline in world gold prices. In this scenario, gold trading companies are unlikely to decrease gold prices when selling their inventory. If world gold prices decrease, these companies are unlikely to reduce their selling prices, raising questions about where they can acquire new gold when needed. Over the past decade, a pattern has emerged wherein the domestic gold price experiences minimal decreases while the difference with world gold prices increases substantially, safeguarding the value of gold trading companies' inventories.
In conclusion, these scenarios shed light on why, since the inception of Decree 24, the difference between domestic and world gold prices has evolved from around VND 2 million per tael to exceeding VND 13 million. The complexities of the gold market, combined with the inflexibility of current regulations, warrant a reevaluation and potential revisions to Decree 24 to address these widening discrepancies.
Decree 24's Impact and Ongoing Challenges
The implementation of Decree 24 in the Vietnamese gold market has had significant consequences, particularly in managing the exchange rate and curbing the phenomenon of goldization in the economy. An analysis conducted before Decree 24 was introduced highlighted that the wider the gap between domestic and world gold prices, the more pressure it exerted on the VND/USD exchange rate. This pressure stemmed from the necessity to import gold by gold trading companies.
Decree 24, by monopolizing the production of gold bars and regulating the import of gold bars, has successfully mitigated the negative impact on exchange rate management and limited the prevalence of goldization. However, the remaining challenge lies in the issue of smuggled gold, as evidenced by cases like Mười Tường, where the price difference creates opportunities for illegal activities. Authorities across various agencies, from the Border Guard and Customs to Market Management and investigation officers, have had to enhance their law enforcement capabilities to combat smuggling and cross-border money transportation.
From an individual perspective, this trade-off is seen as acceptable for maintaining a highly effective monetary policy. Some proponents of narrowing the gold price gap suggest that the State Bank should import gold and sell it, or alternatively, allow gold trading companies to nominally import gold for the production of gold jewelry. Over the past decade, gold jewelry prices, based on the same gold standard, have consistently been lower than gold bar prices. For instance, on December 2, 2023, PNJ listed gold bars at VND 7.403 million per tael, while the price of 24K gold jewelry (9999 gold) stood at VND 5.39 million per tael.
The perceived nature of this price difference is not attributed to heightened demand for gold jewelry but rather to the limited availability of gold bars, leading consumers to opt for gold jewelry. Consequently, pressure from gold trading companies or supporters of gold import mounts on the State Bank to either sell raw gold or allow nominal imports for gold jewelry production. The difference in gold prices based on this jewelry gold standard is relatively small, alleviating pressures on gold smuggling and the exchange rate in the free market.
As discussions on the difference in gold prices persist, it becomes essential to consider which gold price to compare. The market is witnessing the existence of numerous gold bar brands running parallel to SJC gold bars managed by the State Bank. These brands sell at prices higher than gold jewelry and lower than gold bars, taking advantage of the gold price difference. Proper management is crucial to address these evolving dynamics in the gold market.
