Domestic gold price too higher than world market

Saigon Investment
The Saigon Jewelry Company Limited (SJC) has been raising the domestic gold bar prices at a much higher rate to that of gold prices in the world market. 
Domestic gold price too higher than world market ảnh 1 Illustrative photo

Unlike the daily rise and fall of gold prices in the world market, SJC gold prices have over the last few years risen sharply or soared very high at times, and only occasionally declined slightly. This clearly proves the monopoly hold of SJC on the domestic gold price with a huge difference in its pricing as compared to the world market gold price.

SJC prices skyrocket

In late 2018, SJC prices were VND 36.32 to VND 36.59 mln per tael (1 tael is around 1.3 oz). At that time, the selling price per tael was about VND 220,000 higher than the buying one. The price remained below VND 40 mln per tael from 2013 till late 2018. However, since 2019, SJC prices have skyrocketed and remained high. In 2019 alone, gold prices made a total increase of around VND 6.2 mln per tael due to the trade tension between China and the USA, causing the price of this precious metal to increase considerably in the global market.

By August 2020, the world gold price reached US$2,063 per oz, surpassing the previous record of US$1,924 per oz, which happened in September and October 2011, pushing SJC gold price to rise even higher. Gold bars closed at the end of 2020 at VND 55.55 mln to VND 56.1 mln per tael. The General Statistics Office figures show that for the whole year of 2020, the gold price index increased by 28.05 percent compared to 2019. Hence, the average entire year increase was nearly VND 13.5 mln per tael.

In late 2021, SJC gold climbed to VND 60.75 to VND 61.45 mln per tael. When the Russia-Ukraine conflict broke out in early 2022, the world gold price increased from US$ 1,900 per oz to a record high of US$2,078.8 per oz, rising from 24 February to the peak on 8 March, an increase of US$178.8 which was equivalent to an increase of VND 4.1 mln per tael at the domestic exchange rate. In the meantime, SJC gold soared from VND 64 mln to the peak of VND 74.4 mln per tael. Now in late September 2022, the world gold price is around US$1,650 per oz, equivalent to VND 47.5 mln per tael, but SJC gold is currently at VND 64.4 to VND 65.5 mln per tael, which means the difference between the domestic and international prices is approximately VND 20 mln per tael.

Along with the upward trend from August 2020 till now, the difference between domestic and world gold prices has been constantly widening. It is obvious that in early 2014, the State Bank of Vietnam stopped bidding for gold because it was stable in both prices and quantity in the domestic market.

Therefore, there has been almost no intervention from the State Bank of Vietnam when such intervention is needed to stabilize the demand for gold in the domestic market. This is why the difference in domestic and international gold prices has become increasingly bigger. In 2021, the gap was more than VND 11 mln per tael. In 2022, the world gold price had dropped but the difference has increased by VND 17 mln to VND 19 mln per tael, and at times the difference was nearly VND 20 mln per tael, and is currently around VND 18 mln per tael.

Difference in international price

In May 2022, a member of the National Assembly raised the question about the unusual development of the domestic gold bullion market when the difference in the domestic and international gold price was too big. This question caused SJC gold to fall slightly at the end of May 2022, from VND 69.9 mln per tael to VND 68.8 mln per tael. At that time, the difference in the SJC and international gold price was VND 16.55 mln per tael.

Recently, however, the world gold price dropped sharply to below US$1,700 per oz, but the domestic price fluctuated only a narrow range, leading to the reoccurrence of the big gap of VND 18 mln to VND 19 mln per tael compared to the world market price. From 2020 until now, SJC gold has continuously maintained its monopoly in the domestic market.

The gap between the domestic and international gold prices is still huge due to a very old reason that there is no connection between the domestic and international gold trading. Since 2012, the State Bank of Vietnam has not provided the gold import quota for a number of large gold trading enterprises as well as large joint stock commercial banks.

Even domestic gold processing has been strictly controlled by the State Bank of Vietnam and hence the supply of gold is therefore not entirely seamless. The State Bank of Vietnam has also promised to continue bidding when the market requires, but it has been more than eight years and no bidding for gold bar supply has yet been organized.

The SJC is a state-owned company, but the mechanism of supplying gold bars for it through gold import or domestic gold stamping is managed by the State Bank of Vietnam as stipulated by Decree 24 issued in 2012. Therefore, SJC is actually just a normal company like any other gold business in the sense that if it can buy gold, it can sell the gold as well.

However, if it has difficulty buying gold, it will not dare to sell a lot of it. As a result, it must raise the price to minimize the number of buyers. This explains the fact that when the world gold price increases, gold trading companies also immediately try to adjust the buying and selling prices in the direction of preserving their own capital.

The State Bank of Vietnam has confirmed that people do not have the need to buy too many gold bars, for which it has not provided any intervention. The State Bank of Vietnam will only import gold as an intervention measure in times of real need. In fact, no one would have a great demand for SJC gold at the moment when the difference in domestic and world prices is almost VND 20 mln per tael. Moreover, the difference in the buying and selling price of gold in Vietnam is between VND 800,000 and VND 1 mln per tael, which means that when people buy one tael of gold, they immediately make a loss of about one million dong.

Gold bar trading companies have also explained that they do not manipulate or set prices, but it is the market demand that decides the trading price. However, observation shows that the fluctuation of gold prices is obviously controlled by gold bar companies in an effort to guarantee security of the metal. It helps that people's indifference to gold bar prices is beneficial for the management of the commodity. However, the monopoly of SJC gold bars also leaves hundreds of tons of gold lying in people’s homes across the country as a potential source of idle money.

Perhaps at this time, the operating body has yet to consider changing the way the domestic gold market is managed because the State Bank of Vietnam has taken a very cautious approach in its dealings with the precious metal. In such a situation, any expectation of SJC gold returning to market value price can be ruled out.

Saigon Investment

Other news