Why Vietnam's gold prices skyrocket, widening disparity with global rates

By Quynh Trang   December 28, 2023 | 03:46 pm PT
Why Vietnam's gold prices skyrocket, widening disparity with global rates
Gold jewelry on display at a shop in Ho Chi Minh City. Photo by VnExpress/Quynh Tran
Vietnam's gold prices hit historic highs this week, exceeding global rates by a third amid surging demand and stagnant supply, according to market analysts.

Saigon Jewelry Company (SJC) gold price rose to a new record of VND80.3 million ($3,304) per tael on Tuesday and has been fluctuating around that level since, having risen almost 20% since the beginning of the year.

Huynh Trung Khanh, deputy chairman of the Vietnam Gold Traders Association, clarified that this surge is attributed to a real spike in demand rather than sellers inflating prices for profit.

He pointed out that anticipations of a change in U.S. monetary policy, where a reduction in Federal Reserve interest rates in March is expected, could devalue the U.S. dollar and simultaneously boost gold values.

Khanh also mentioned the influence of a "herd mentality," with people rushing to buy gold as it reaches new historic highs, in the hope of future price increases.

"They bought gold with the expectation of selling it even higher next year."

However, the core reason for the rising gold prices is the widening gap between demand and supply, with the latter remaining unchanged.

In Vietnam, the production of gold bars is stringently controlled by the government, with SJC, a state-owned company, bearing the responsibility. Khanh noted that SJC's gold bar production machinery has been idle for years.

SJC CEO Le Thuy Hang added that the domestic supply of gold bars hasn't seen an increase since 2014, with some gold bars being diverted to create jewelry for export.

Before 2020, gold bar prices were generally slightly higher or equivalent to jewelry prices. However, following a significant export of gold bars in 2019, as Hang stated, the supply has become "very limited," causing a surge in prices and a growing disparity with jewelry prices.

Khanh said that gold bar is now becoming an antique that is traded around among investors, and their prices will only go down should the State Bank of Vietnam decided to increase the supply.

In that scenario many recent golds bar buyers will suffer losses as prices will plunge, he said, adding that buyers should be careful in making an investment decision as gold bar prices can fluctuate in wide margin and carry high risks.

On Thursday morning, the gold price in Vietnam saw an increase of 0.12%, reaching VND79.6 million per tael, standing 34% above the global rate. However, by Thursday afternoon, it experienced a plunge of 2.52%, dropping to VND77.5 million.

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