Gold market shines in uncertain times

The first week of July has seen a historic ascent of gold prices in Vietnam, as buying quotes soared from VND36.9 million per tael (US$1,438 per ounce) on July 4 to VND39.5 million per tael (US$1.540 per ounce) on July 6. This also marked the highest prices for gold in Vietnam since 2014 and thus, prompted thousands of individuals to stock up on the precious metal.

The buying mania only cooled down as gold prices dipped during the last few days of the week. On July 7, purchasing rates at Saigon Jewellery Company fell to VND37.5 million per tael (US$1,462 per ounce) and plunged even lower to VND36.95 million per tael (US$1,440 per ounce) on July 8. Despite the slight drop, gold prices still jumped by 13% since the start of 2016.

Similar excitement has been experienced throughout the global market, as gold reached its peak since March 2014 at US$1,371 per ounce on July 6. This was even higher than the US$1,358 per ounce on June 24, when the UK voted to depart from the European Union. Later on in the week, investors earned profits and gold prices modestly dipped.

Earlier, HDBC analysts predicted a sizeable appeal for gold in the coming months, as uncertainties from the UK “Brexit” vote would increase demand and drive up prices for the precious metal. As gold is independent of any economic policy or central bank, it is considered a safe-haven asset whenever investors become pessimistic about the market’s outlooks.

“In the event that capital outflows weaken the British sterling and euro, gold would likely be a destination for much of this flow. This could have a bullish impact on the value of gold. While we expect that prices could rally up to 10%, they may rise even higher if there were to be further concerns regarding the future direction of the EU after [the Brexit]”, noted the analysts.

Regarding the gold hysteria in Vietnam last week, experts agreed that global rallies and uncertainties following the Brexit may have been two contributing factors. However, according to the chairman of the Vietnam Gold Trading Association, Nguyen Thanh Long, such as steep rise in Vietnam was mainly due to psychological reasons.

“Existing investors have hoarded their gold to anticipate higher prices. And new buyers flocked to purchase this precious metal for the same reason. As a result, there was a shortage of gold in Vietnam, last week, which prompted even more hoarding and sparked speculation”, said Long.

He then warned that as gold reaches its peak, profit-taking activities will take place and push down gold prices. Thus, investors must take great caution if they want to bet on the further rise of gold rates.

Economic expert Nguyen Tri Hieu agreed with this view, adding that individual investors should not allocate more than 30% of their capital to gold, as the precious metal is an asset prone to extreme price volatility. He advised investors to “keep their head cool” and be wary of rumours that gold may surpass US$2,000 per ounce this year.

Meanwhile, the State Bank of Vietnam (SBV) announced that it would interfere with the gold market if necessary to keep prices under control. Nguyen Ngoc Canh, head of the Foreign Exchange Regulation Department at the SBV, said that recent gold rallies are short-term spurts.

“The SBV will keep a close watch on the gold market and get ready for any necessary intervention. Out actions will be in line with Decree 24/2012/ND-CP, which since its launch has significantly reduced gold conjecture in Vietnam”, said Canh.