Economist: Imports will not help keep gold prices low

Allowing enterprises to import gold can only prevent the domestic prices from increasing more sharply than the world prices. If the world prices keep rising, it will be impossible to keep the domestic prices low, said Vu Viet Ngoan, Deputy Chair of the National Assembly’s Economics Committee.

Ngoan, in the talk with press agencies on the sideline of the ongoing National Assembly session, said that the gold imports can only help stabilize the prices in short term.

Why doesn’t Vietnam have an institution in charge of making surveys and giving forecasts about the gold price performance?

Foreign institutions have been providing gold price forecasts regularly. They have warned that the world price may climb to $1400-1500 per ounce. One researcher said the price would be even $2000 per ounce. However, these are just forecasts.

One of the reasons why increases in gold price are forecast is that when political oreconomic events, or big natural disasters occur, people tend to purchase gold to store it, considering gold as their “safe shelter”

The second reason is that the foreign currency reserves of some countries, including China, Taiwan, Japan and South Korea are very high. China’s reserves, for example, have reached $2600 billion. In the next 5-10 years, if it continues to have trade surplus, its foreign currency reserves may reach $4000-5000 billion, and its gold reserves will also be increasing.

People are talking about a possible “currency war”, and if the war happens in reality, the gold reserves of central banks in the world will continue increasing.

However is it clear that the domestic gold price performance is “abnormal” in recent days?

The domestic prices have been increasing in accordance with the world prices. What is “abnormal” here is that the domestic prices have been increasing more sharply than the world prices.

I think this can be blamed on speculation. Vietnamese people release investment decisions even when they lack sufficient information. They just follow the crowd in making decisions. The volume of gold lying outside circulation is very big, therefore, when people rush to speculate gold, this has a big impact on the market,.

It seems that the State Bank’s measures to intervene in the market are not very effective. The gold prices decreased right after the decision on allowing gold imports? was released, but then have bounced back again.

The world price has also been going up and down. However, it is true that the upward trend has been prevailing. As the world price has climbed to $1420 per ounce, the domestic price has to increase accordingly.

The Vietnam Gold Business Council and many enterprises have repeatedly asked for removing of the gold import-export licensing mechanism. What is your viewpoint on this?

I personally think that we should not remove the mechanism. However, policy makers should be clear-headed by making timely and reasonable decisions at different moments.

Do you think that allowing the import of gold at this moment is a right decision?

In the immediate future, it is necessary to allow it. The demand for gold from the public remains very big. The decision to allow the imports of gold will help ease the speculation.

You once warned about the possible imbalance in foreign currency reserves, if the volumes of gold and foreign currencies kept among people are too high. How should this problem be solved? When the gold prices increase, this always brings about a sharp foreign currency price increase…

The dollar has been increasing rapidly because of many reasons. The consumer price index (CPI) has been rising considerably, and Vietnamese people fear that the Vietnam dong will lose its value further. The sharp increases of gold prices have led to the dollar increases, thus pushing the prices of other goods up.

I have to emphasise that in other countries, the gold price increases have only a little effect on the price index. However, in Vietnam, when the gold and dollar prices increase, the prices of other goods will increase accordingly. And once the goods price increase, this will make the gold and dollar increase further.

In order to settle the problem, besides economic measures, it is necessary to reassure the public. People should understand that speculation has negative effects on national economy as well as people themselves. – Vietnamnet

Tags: vietnam gold, Vietnam gold market, Vietnam gold prices