High gold prices increase level of risk in Vietnam: RMIT expert

Considerable fluctuations in gold prices in Vietnam over the last two quarters have led to a high level of risk in the gold market, writes Dao Le Trang Anh, lecturer in finance at RMIT Vietnam.

Domestic gold price increases

Based on my observations, recent increases in domestic gold prices in Vietnam can be linked to several factors, including both global economic trends and domestic economic conditions.

Firstly, global economic uncertainty remains heightened, contributing to recent record highs in the world gold price. Significant events such as the recent mass shooting in Russia, the elections worldwide in 2024, and ongoing conflicts such as the war in Ukraine and the Israel-Gaza conflict have strongly impacted investor confidence.

As a result, there has been a noticeable increase in demand for gold as a safe-haven asset. Additionally, the surge in gold prices is being partly driven by strong demand from private investors in China due to sluggish performance in the real estate sector. Moreover, the U.S. Federal Reserve (Fed)'s plan to cut interest rates three times in 2024 has further pushed up gold prices in Vietnam's domestic market.

Currency devaluation is another critical factor in the domestic market. The recent sharp rise in the USD/VND exchange rate has directly contributed to the increase in gold prices. As of April 2, 2024, the USD/VND exchange rate on the interbank market was nearing its highest point since November 2023, reaching an average of VND24,867 per dollar. Given that gold prices are typically denominated in USD, the substantial appreciation of the exchange rate has led to a rise in gold prices.

Furthermore, there exists a supply-demand imbalance in the Vietnamese gold market. While demand remains high, the limited supply and disparities in import material prices have contributed to the elevated price levels. Moreover, there is a significant price gap between SJC gold and international gold prices driven by consumer preference for SJC gold as a reliable asset store and risk hedge.

Overall, the recent increases in domestic gold prices in Vietnam can be explained by a combination of global economic uncertainty, currency devaluation, and demand-supply factors. These factors interact in complex ways to influence the price of gold in Vietnam, impacting investor behavior and market trends.

Is it advisable to invest in gold at the moment, especially compared to the stock or real estate markets?

The current gold prices in Vietnam are relatively high, so the level of risk has also significantly increased. The considerable fluctuations in gold prices in Vietnam over the last two quarters have indicated a high level of risk in the gold market. In fact, the Government issued Directive No. 1426/CĐ-TTg on December 27, 2023, addressing the management of the gold market and emphasizing the need for effective measures to regulate domestic gold prices according to market principles, avoiding the discrepancy between domestic and international gold prices as seen in recent times. Immediately after the directive was issued, the price of SJC gold dropped significantly.

If Decree 24, issued in 2012 on gold management, is amended to remove the monopoly on gold bullion, the price in Vietnam may be substantially affected and approach world gold prices due to increased supply. According to data updated as of April 2, 2024, there is a price difference of about VND13 million per tael between domestic and world gold prices. Volatilities in the global market may continue to increase and lead to a rise in world gold prices in the next couple of months, according to a report by JPMorgan. Decree 24 will also be an important factor for investors to consider when investing in gold in Vietnam.

Regarding the stock market, there is still room for this market to grow according to currently low interest rates and Vietnam’s government efforts to disburse public investment capital, offering promising investment opportunities. However, stocks may face increased volatility and risk amidst current global economic uncertainty and interest rate changes. Investors considering stocks should conduct thorough assessments of individual companies, sectors, and market conditions to identify growth potential while managing risks effectively.

Concerning the real estate market, it has been stagnant for quite some time. However, the apartment building market is currently thriving, and land plots are becoming active again amid low interest rates. Real estate investment presents opportunities for long-term appreciation and income generation. Nevertheless, investors must be cautious to avoid scams and identify the right investment opportunities. Additionally, factors such as regulatory changes, supply-demand dynamics, and economic conditions should be carefully evaluated before investing in real estate.

Finally, it is noteworthy to highlight that the choice of investments (gold, stocks, real estate, or other assets) depends on investors’ individual financial situations, investment objectives, and risk tolerance. It's essential to consider investment goals and conduct thorough research or consult with a financial advisor before making any investment decisions. Also, diversifying investment portfolios across multiple asset classes can help investors mitigate risks and optimize returns in the long term.