Is the gold price stabilization policy truly effective?

DNHN - Dr. Bùi Duy Tùng, an Economics lecturer at RMIT University, assesses the pros and cons of the gold price stabilization policies implemented by the State Bank of Vietnam (SBV) in recent times.

According to Dr. Tùng, these policies have contributed to narrowing the gap between domestic and global gold prices. Currently, the domestic gold price is only about 5 million VND per tael higher than the global price, compared to the significant difference of 16-17 million VND per tael in the early months of the year.  

Moreover, the situation of "goldization" has been controlled. The policy of selling gold through commercial banks has helped reduce people's demand for hoarding gold, thereby decreasing the phenomenon of goldization in the market. This has contributed to short-term stability in the gold market.  

The current gold selling mechanism has helped ease the "gold fever" in the country, as people no longer rush to buy gold as before. This helps stabilize the market and prevent goldization. By keeping the SJC gold bar price stable, the SBV has helped maintain consumer and investor confidence, avoiding a rush to buy gold that could lead to uncontrollable gold fevers. This has reduced pressure on the gold market and avoided negative economic consequences.  

However, the gold price stabilization policies still have some drawbacks.  

First, the gold trading network has been narrowed. The SBV's decision to sell gold through only four commercial banks and SJC has reduced the gold trading network, making it difficult for people to access gold, especially in provinces outside of Hanoi and Ho Chi Minh City. This reduces market vibrancy and hinders people with a demand for gold.  

Second, the process of buying and selling gold has become more complicated. The current process, which requires online registration, a waiting period of a few days to receive gold, and a limited number of sales points, has reduced flexibility and created difficulties for people. This has discouraged many from participating in gold transactions. Since only commercial banks and SJC are allowed to sell but not buy gold, many people feel unsafe investing in gold. The lack of options to resell gold has made people less interested in gold as an investment channel.  

Third, the market lacks supply-demand balance. Although the SBV has taken measures to stabilize gold prices, overly strict control may lead to long-term imbalances, such as the emergence of black markets and unauthorized gold trading. The SJC gold bar market has become less dynamic, with sluggishness and a lack of liquidity.  

The sharp decline in gold trading has made the market less attractive to investors. Prolonged administrative management measures can lead to negative issues such as the formation of black markets, the appearance of fake gold, and fraud in gold transactions. This can erode public confidence in the official gold market.  

Fourth, the policies have not yet eliminated the monopoly of the SJC gold brand. The current policy still maintains the monopoly of the SJC gold bar brand, which may lead to unreasonable price disparities and fail to ensure fair competition in the market. The SBV's continued monopoly on gold imports also limits supply, leading to shortages and unnecessary price increases.  

Fifth, the price of gold rings has risen above that of gold bars. As SJC gold bars have become harder to buy due to limited sales, consumers have turned to gold rings. The rise in gold ring prices above SJC gold bars due to the shift in consumer demand highlights the imbalance in market management.  

The gold bar price stabilization policy has created a "whack-a-mole" effect, causing gold ring prices to rise sharply and potentially continue rising, leading to market instability. The SBV's strong intervention in managing SJC gold bar prices can distort the gold market. When gold bar prices are kept low compared to gold ring prices, this may encourage speculative behavior or unwanted capital flows, causing long-term instability in the market.

Ngoc Hoang (RMIT)