Higher prices than bullion for gold rings 'abnormal': economist

Gold rings are just jewelry, so their prices being higher than that of SJC gold bars, which has high liquidity like currency, is an unusual phenomenon, says economist Nguyen Tri Hieu.

At the close of Sunday’s trading session, gold rings of major brands were priced at around VND75.9-77.15 million ($3,040) per tael (buying-selling), while that of SJC-branded gold bullion was VND74.98-76.98 million per tael.

The price of gold rings has continued to increase and overtaken SJC gold bars. How can this be explained?

This is an unusual phenomenon. SJC gold bar prices have always been higher than that of gold rings because it has high liquidity, almost equivalent to currency, while gold rings are just jewelry, not usually meant for hoarding.

It can probably be explained like this: if you squeeze one end of a balloon, the other end will bulge. When national regulators lower the price of SJC gold bullion, its price may be close to or even lower than the world gold prices; however, when supply does not meet demand, the demand for gold rings goes up.

It should be noted that bringing down the price of gold bars is only a necessary condition, but, by itself, it is not sufficient to stabilize the gold market. For this, supply must meet demand. It is worrying that people who want to buy gold cannot do so despite low prices.

In a market economy, if customers cannot buy gold bars at low prices in the official market, they will be willing to pay higher prices for gold in the black market.

Have regulators achieved the goal of stabilizing the gold market, especially for SJC-branded gold bars?

Well, as we have seen, the rush to buy gold rings indicates otherwise. Will speculation and hoarding occur again in the gold ring market? If gold ring prices continue to rise, we will have to import gold, affecting our foreign currency reserves again.

World Gold Council data showing that we only need to spend a few billions of USD on gold imports each year is a thing of the past and does not reflect current demand. Some transactions we can count but others we can't. If gold prices continue to increase sharply, we may not be able to control the formation of a black market for gold bars.

Do you think that if the current gold bullion price control continues, it will cause customers to turn away from gold bars in the long run?

This can happen but the probability is not high. This speculation is based on the investment sentiments of Vietnamese people, especially those who do not have enough money to invest in real estate and are not knowledgeable about the stock market. While deposit interest rates are currently only 6-7% per year, the attraction of gold, with an average profit of 15-20% per year, is too great. The habit of investing in gold is even more difficult to break as world gold prices keep rising.

Of course, it will be great if the current solution can change this habit, but it’s not feasible. On the contrary, if people switch from investing in gold bars to gold rings, it creates risks and forms a black market for gold bullion.

We are at a crossroads. When we choose to follow the market economy, we need to follow the principle of supply and demand, and accept that buying and selling prices are also determined by this factor. If the official market cannot meet customer needs, a black market forms, making it impossible to stabilize the market in a sustainable manner.

How do you foresee world and domestic gold prices in the coming time?

The U.S. Federal Reserve (Fed) has delivered a message saying it will no longer depend on the 2% inflation target. Therefore, it is likely to find a way to reduce interest rates sooner than expected. This could happen before the Presidential election.

When the Fed lowers interest rates, the value of the dollar will decrease, supporting further gold price hikes. Central banks around the world are continuing to buy gold. In particular, when the BRICS (China, Russia, India and Brazil) is looking for another currency to replace the USD, they will reduce national reserves defined in dollars and increase gold reserves in their national reserve basket.

All this leads to the prediction that gold prices will increase. Also, ongoing geopolitical conflicts could push up gold prices further. World gold prices could reach $2,500 per ounce this year and $3,000 per ounce in 2025.

Domestic prices will follow world gold prices, creating more pressure on regulators. The gold bar market is being controlled now, so when gold ring prices increase sharply, will there be a need to stabilize this market, too?