The gold market witnessed a roller coaster ride last week with an unprecedented price rush, shocking both investors and analysts and partly affecting other financial and investment markets.

The national SJC-branded gold price had been continuously setting records from VND70 million (US$3,040) per tael on Monday morning to VND73.5 million on Monday afternoon. It jumped to VND74.4 million on Tuesday before gradually falling to below VND70 million per tael on Thursday under huge profit-taking selling pressure.

One tael is equivalent to 1.2 ounce.

It settled at VND68 million per tael for buying and VND69.8 million for selling at 5pm on Saturday.

If investors bought gold at the peak price and sold now, they would lose VND6.4 million per tael in just four days.

When the gold prices hiked, jewellery stores in Ha Noi and HCM City were again crowded with many people lining up to buy or sell gold. For a long time, domestic gold buyers practise herd behaviour, taking advantage of “surfing” to earn short-term profit. However, many investors tasted “bitter fruits” this time after prices plummeted in just several days.

Some analysts have raised concerns about market manipulation when seeing many people rush to buy gold despite the domestic price being nearly 30 per cent higher than the world price.

“For many years, people have not paid much attention to gold as before so the trading volume of gold on the market could not push the price up so much,” said Phan Dung Khanh, head of Investment Advisory at Maybank Kim Eng.

It can be seen that the jump in the gold price in the past week has pushed investors into the "offside" position when trading in this market.

For many times, economic experts have advised investors not to buy gold to surf when the gold price is high because the discrepancy in price between the domestic and international market is too big and investors are exposed to losses if the market reverses.

Unprecedented discrepancy

In August 2020, when the world gold price peaked at more than $2,063 per ounce, the domestic gold price was only traded around VND60 million per tael. However, on March 8, when the SJC gold price was traded at the historic peak of VND74.4 million per tael, the world gold was priced around only $1,987 per ounce, equivalent to VND55.03 million per tael based on the current exchange rate, leading to an unprecedented price discrepancy of nearly VND19.4 million for a tael of gold.

Domestic gold price fluctuation last week. Data compiled from sjc.com.vn

For many years, the domestic gold price was no more than 10 per cent higher than the world price based on the bank exchange rate. However, within the past year, the domestic price is usually 10-15 per cent higher than the world price.

Kitco statistics showed the price of this precious metal increased by 8.6 per cent in the last 30 days and 11.4 per cent in the past six months. Meanwhile, in the past month alone, the SJC gold gained up to 23 per cent.

Such a huge discrepancy will push the risk to investors greatly.

Furthermore, in order to reduce risks, gold businesses have kept the difference between buying and selling at a high level of more than VND2 million per tael in some days, last week, higher than usual VND1-1.3 million per tael.

Huynh Trung Khanh, senior advisor of the World Gold Council in Viet Nam and Vice Chairman of the Viet Nam Gold Traders Association, explained domestic enterprises cannot produce gold on their own but must import. Therefore, the domestic gold price is higher than the world price due to additional costs such as transportation and insurance.

Khanh said from 2012 up to now, according to Decree 24/ND-CP on the management of gold trading activities, the central bank does not ban the import of raw gold, but this agency still manages and allows businesses to import only when necessary for jewellery making. This is aimed to control gold imports and avoid "goldenisation" in the economy.

Need State intervention

Khanh acknowledged the current difference between the SJC gold price and the world price is too unreasonable.

“For many years, the World Gold Council has repeatedly suggested that the State Bank of Vietnam should soon intervene to bring the domestic gold price down to match the world price," he said.

"This excessive difference becomes a ‘strange phenomenon’ in the gold market, while those wishing to buy national-brand gold suffer losses because the price is pushed up too high.”

Gold is no longer a means of payment, so according to experts, rising gold prices have little impact on food prices, raw materials, or CPI. However, gold fever could attract "speculators" to invest capital in gold trading, reducing the capital investment in production and business activities and affecting the recovery of the national economy.

In addition, this may provoke gold smuggling from abroad into Viet Nam which needs State intervention to regulate the domestic gold market.

Economist Dinh Trong Thinh said: “I think it's time for the State Bank to step in to stabilise the gold market, make the domestic price close to the world price as well as narrow the buying and selling price gap.

"The State Bank also needs to observe and monitor whether there is a phenomenon of speculation, price manipulation or smuggling of gold so that it can intervene in time.”

Financial expert Can Van Luc also said the big difference in price will create the "gold trading" mentality.

Luc said Decree 24 has been in effect for 10 years while the market volatility increases greatly, so it needs to be updated. He suggested the State Bank can review each stage leading to costs such as importing gold, processing, and preserving with measures in place to help reduce input costs for gold.

VNDirect Securities Joint Stock Company in its latest update on the gold market said that the gold fever may soon end. This precious metal is inherently considered a “safe-haven asset” and tends to hike in the short term when conflicts and geopolitical tensions take place. However, the uptrend of gold price usually does not last long and will go down when the tension subsides.

The company predicted the impact of the Ukraine crisis on gold price will fade in the next three to 12 months. The momentum of the gold price will then depend more on economic data and monetary policy.

Notably, as the US Federal Reserve (Fed) may start raising interest rates at its mid-March meeting, the pressure on gold prices will gradually increase. Therefore, the short-term rally in gold prices may soon end and enter a period of adjustment.

Leaders of the State Bank said the high gold price does not affect the general price of goods and does not affect the price of the foreign exchange rate. The market watchdog will closely monitor the gap between buying and selling prices on the market, if there is any abnormality, it will intervene immediately. — VNS