Gold remains sparkling

Both global and domestic gold prices set an all-time high in the first half of August this year, then declined sharply. Thus, after nearly 9 years of stability, the gold market has been vexed again amid the context that the global economy has been turned upside down due to the Covid-19 pandemic. Moreover, the recent trade tensions between the US and China have made this precious metal sparkle again.
Customers buy gold at a gold store in Hanoi. (Photo: SGGP)
Customers buy gold at a gold store in Hanoi. (Photo: SGGP)

Gold buyers suffer disadvantages

After breaking the record set in September 2011, with a price of about US$1,920 an ounce in mid-July this year, the global gold price increased to $2,070 an ounce on August 7 this year, the highest level in history. The price of gold in Vietnam on August 6 hit VND62.5 million per tael, much higher than the record high of VND49 million per tael made nearly 9 years ago.

Explaining the sharp increase in the global gold price, the State Bank of Vietnam said that gold prices beat every record and continuously set new heights, mainly due to the need to invest in gold as a safe-haven asset amid the current period. The Governments and the central banks of many countries have in turn deployed economic stimulus packages to limit the negative impacts of the pandemic on the economy. The yield on the 10-year US government bonds has dropped to a negative 1.06 percent. Besides, trade tensions between major countries are also the reasons that have caused bullion to escalate.

However, after a nine-week winning streak, bullion prices on the international market have reversed, decreasing by 5 percent within just five days, from the peak of $2,070 an ounce on August 7 to $1,867 an ounce on August 12, and is currently trading around $1,950 an ounce. Along with the fluctuations of the global bullion price, the domestic gold price has lost tens of millions of Vietnamese dong per tael, from VND62.5 million to VND48 million dong per tael for buying and VND52 million dong per tael for selling on August 12.

It is recorded that even when the price of gold increased strongly, the number of people buying gold remained high. A gold trading enterprise said that when SJC gold rose to VND57-58 million per tael, there were still many customers buying dozens or even hundreds of taels of gold, while the number of people with buying volume of fewer than 10 taels of gold was a lot.

During the days when gold prices dropped sharply after continuously setting new records, most customers went to gold shops to sell gold. Some gold shops in District 5 in Ho Chi Minh City had to remove the price list to limit the buying volume or buy gold at a very low price because, at that time, the global gold price was still on the losing trend. Meanwhile, large gold trading enterprises widened the gap between buying and selling prices to more than VND4 million per tael.

The time when gold fluctuated greatly, the metal plunged by VND2-4 million per tael in a day, whoever bought gold would suffer either a little or a huge loss. Meanwhile, gold trading enterprises earned high profits. Although gold trading enterprises explained that widening the gap between buying and selling prices was to limit risks when the market fluctuates, with this move, they have pushed risks towards buyers.

State management agency said that changes in the domestic gold price were mainly affected by the international gold price, and the increase of SJC gold was in line with the increase of the international gold price. Gold trading volume did not change suddenly, the buying and selling volume of gold decreased by about 30 percent compared to the same period last year. But according to the gold trading enterprises, the domestic gold price recently increased wildly not only because of the impact of the global bullion price but also due to the increasing demand, which pushed the domestic gold price to rise faster and stronger than the global one.

Sometimes, the price of SJC gold was higher than the global gold price by more than VND4 million per tael, while before that, it was still in tune with the global gold price. Meanwhile, the prices of 24K gold jewelry and gold rings were listed at VND3 million per tael lower than the gold bar. It was also lower than the global gold price after conversion because the demand for this type of gold is currently quite low. This is understandable because the price of gold increased sharply and stood at the highest level in history, causing the demand for gold jewelry of customers to drop sharply.

Some analysts said that the fact that the domestic gold supply is limited, and the central bank's monopoly policy on gold imports was one of the reasons for this gap to expand. However, whatever the reason is, the fact that customers buy in gold and have to suffer a loss of millions of Vietnamese dong per tael if they sell immediately is too big a risk.

Gold remains in upward trend

Explaining the reversal last week, according to gold expert Phan Dung Khanh, the gold price has had the longest rising chain in history with nine weeks, so corrections are necessary for the market to be more sustainable. Besides, recent data from the World Gold Council (WGC) shows that the gold buying speed of the world central banks in recent months tended to slow down, also triggering decreasing pressure in the short term.

However, according to Mr. Khanh, in the medium and long term, the gold price is still on a rising trend because of many factors. Particularly, the US economy is being affected by many unfavorable factors, such as the Covid-19 pandemic has not shown signs of cooling down, but even when the pandemic is controlled, its consequences will last for many years. Tensions between the US and China have not come to an end yet, causing the cash flow to pour into gold. Local investors might add a portion of gold to their portfolio when the price of gold makes corrections.

International experts also forecast that the global gold price will continue the upward trend. Speaking on Kitco News, Mr. Ole Hansen, Head of Commodity Strategy at Saxo Bank, said that the gold market depends a lot on the decisions of the US Federal Reserve. The market is changing erratically, but in the medium and long term, analysts still believe in the rising momentum of the precious metal. Uncertainty factors will continue to support the metal to nail at high levels.

He said that gold prices last week saw some of the most intense selling pressure in years, but the recovery happened quicker than he initially expected. This could signal a return to all-time highs in the short term. There are many reasons to support gold prices to stand above $2000 an ounce, including falling bond yields, a weaker US dollar, overvalued equity markets, and ongoing geopolitical uncertainty.