Is gold worth considering amidst Vietnam’s dynamic market landscape?

Is gold worth considering amidst Vietnam’s dynamic market landscape?

RMIT Finance Lecturer Dr Dao Le Trang Anh reflected on the recent surge in domestic gold prices and provided analysis on investment options in the current market.

Why Vietnam’s gold prices skyrocket 

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, the global economic uncertainty remains heightened, contributing to record highs in the world gold price. Significant events such as the Russia-Ukraine war, the US elections, and the Israel-Gaza conflict have impacted investor confidence.  

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

RMIT Finance Lecturer Dr Dao Le Trang Anh  RMIT Finance Lecturer Dr Dao Le Trang Anh 

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. The USD/VND exchange rate on the interbank market peaked at its highest point since November 2023 on 15 April 2024 (VND 25,090 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, a supply-demand imbalance exists 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. 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 behaviour and market trends. 

Spreading eggs across multiple baskets 

In my opinion, 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 27 December 2023, addressing the management of the gold market and emphasising 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. 

The considerable fluctuations in gold prices in Vietnam have indicated a high level of risk in the gold market. (Image: Unsplash)  The considerable fluctuations in gold prices in Vietnam have indicated a high level of risk in the gold market. (Image: Unsplash) 

If Decree No. 24/2012/NĐ-CP on gold business activities is amended to remove the monopoly on gold bullion, the price of gold bullion in Vietnam may be substantially affected and approach world gold prices due to increased supply. According to the world gold price listed on KITCO updated as of 15 April 2024, there is a price difference of about 11 million VND per tael between domestic and world gold prices if converted at the Vietcombank exchange rate, excluding taxes and fees.  

Although 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 from JPMorgan, the potential amendment of Decree 24 will also be an important factor for investors to consider when investing gold in Vietnam. 

There is still room for the stock market to grow according to current low interest rates and the 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. 

The real estate market has been stagnant for quite some time; however, the apartment building market is 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. 

It is important to highlight that the choice of investments (gold, stocks, real estate, or other assets) depends on investors’ individual financial situation, investment objectives, and risk tolerance. It is 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 risk and optimise returns in the long term. 

Story: Dr Dao Le Trang Anh, Lecturer in Finance, RMIT Vietnam 

17 April 2024

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