Gold Price Fluctuations in Vietnam in 2012 docx

Gold Price Fluctuations in Vietnam in 2012 Instructor: Dr.. GOLD PRICE FLUCTUATION IN VIETNAM IN 2012 40.. The world gold price and our domestic gold price have a strong relation.Any cha

Gold Price Fluctuations

in Vietnam in 2012

Instructor: Dr Hoang Xuan Binh

Group members:

1. Nguyen Thai Ha

2. Phung Thi Hao

3. Nguyen Thi My Hang

4. Phan Thu Hien

5. Nguyen Thi Hue

6. Nguyen Thi Hoai Phuong

7. Pham Ha My

8. Than Duong Thuy

as an investment that appreciates over years and provides a hedge against inflation.Gold is also considered as a medium that can be pledged easily during difficult timesfor securing financial accommodation

16. Gold price in Vietnam in long-time trend is upward but in short-timeperiod, the price of gold fluctuates very complicatedly From 2001, gold priceincreases continuously In 2012, the price of gold is really “hot” The enormous rise ingold price causes an unhealthy psychological effect on people: when the price goes up,they try to buy as much as they can, but when it falls, people tend to sell gold asquickly as possible This is one of the reasons for the expectation of increasing pricelevel of gold, beside the main factor brought by the fluctuations in global gold prices.The instability of gold price seems to make Vietnam’s economy worsen Moreover,gold market in Vietnam has a close relationship with the market in the world It raisesquestions that what the causes, effects and solutions for this situation are; and whichwill have a direct effect on?

17. From the above, the reasons for this fluctuation, effects and solutions are

the most concern of many people Thus, we chose “Gold price fluctuations in Vietnam in 2012” as our topic The assignment is presented in the following structure:

I. Overview in gold price

II. Gold price fluctuations in Vietnam in 2012

III. Prediction on gold price in 2013 and policy suggestions

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20.

I. OVERVIEW ON GOLD PRICE

21.

1 Basic knowledge on gold

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23. Gold is a chemical element with the symbol Au (from Latin: aurum

"gold") and an atomic number of 79

24.

25. Gold has significantly shaped the history of man, his economy and hisoverall perception of life to being a simple hunter gatherer to a man who is driven bythe power of capitalism and understands the value of wealth and its possession

26. People hold gold for a safety, security and privacy thanks to its valuableand highly sought-after precious metal for coinage, jewelry, and other When buyingthe right gold, it is easy to buy, sell, store and transport in a crisis Many investorsaround the world see gold as “the ultimate asset” – an important and secure part oftheir investment portfolios Gold has kept up with inflation during the past 200 years

27. Although it is one of the most popular investment portfolios, gold weightmeasurement is different in each part of the world Therefore, investors must study themeasurement of gold in the market they invest

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2 Measurement of gold

2.1 Measurement of gold in the world

29. Since gold is real money it doesn’t really have a price but more than anexchange rate with other currencies In the world, gold measuring is usually done from

2 points of view: Purity and Weight The purity of gold articles may be described in

two ways: Carat, meaning parts of gold per 24 and Percent, meaning parts of gold per

100 About gold’s weight, the most widely known and used measure unit for gold isthe troy ounce

30.

31. One troy ounce (480 grains) is 31.1034768 grams

2.2 Measurement of gold in Vietnam

32. In Vietnam, gold’s purity is also measured in carats However, mostpopular gold’s weight measurement here is “chỉ”, a traditional Vietnam weight unit.Additionally, “cây” is another unit to measure a great amount of gold

33. 1 chỉ = 3.75 grams

34. 1 cây = 10 chỉ

35.

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1. The formula to convert the world gold price to the domestic gold price

37. This is the general formula to convert the world price (WGP) to theVietnamese gold price (DGP)

38. DGP = (WGP + shipping charge + insurance premium) * 1.20556*e (VND/USD) + processing charge

39.

II. GOLD PRICE FLUCTUATION

IN VIETNAM IN 2012 40.

3 The situation of gold price in Vietnam

41. In Vietnam, the average growth rate of gold price increases 24% per year

in recent years The rate is so high that many people decide to invest into gold and gainmuch profit from this investment After that, the fluctuation of gold price affectsnational inflation by philosophy and belief of residents

42. According to economic statistics, the growth rate of gold price in 2012 isquite slower than that one over the last decade The average growth rate in 2012 isgreater than that of 2011 by 7.83% but much lower than that of 2011 against 2010(39%)

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45. Month46

47. Gold price/tael (million

82. Gold prices can divide into 3 main periods from 2012:

• From January to May 2012, gold price fluctuated At the end of February

2012 it rose dramatically, from 43.8 million dong to 44.9 million dong butafter that it decreased sharply and reached the lowest point at May 2012(41.6 million dong)

• From May to August 2012, it remained stably at the average level of 42million dong per tael Positive relationship between gold price and riskyassets such as stocks was being raised

• On the contrary, gold price had the sign of recovery and rapidly reach thepeak with the figure of 47.4 million dong It is obvious that the price ofgold in the global market that rose to $1,772.60 per ounce had pushed thedomestic market, which has been the trend during the first two weeks of

October However, from October 2012 gold market continued fallingtemperature and declined steadily.

83. As can be seen, the gap between domestic and global price of gold wasstill quite big, which is between 2.8-3 million VND (roughly $140-150) in favors ofthe domestic one, due to lack of a good connection between domestic and foreign goldinvestors According to Reuters, the level of profit that investors gain from goldmarket is lower than other basic goods belonged into RJ/CRB Index

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4 Causes of gold price fluctuation

4.1 The international influence on Vietnam’s gold price

85. The world gold price and our domestic gold price have a strong relation.Any changes in the global gold price can have direct influence on our country’s goldprice, and the price in the world can be the reference system for the price in Vietnam.However, the gold price of Vietnam’s market is set by the government, so when thegold price in the world changes rapidly, the Vietnam gold price reacts slowly In 2012,there was a rising trend all over the world, which directly caused our domestic price tofluctuate in the same rising trend Therefore, investing in gold was still the key toprofits in 2012 The phenomenon of increasing in price of gold in 2012 is caused bysome main factors

86. The first reason was the decline in gold supply Gold is provided mainlyfrom gold mining companies, the recycling gold after being used and the possible sale

of gold of central banks Some of the largest mining gold producers of in the world are

in South Africa, United States, South America and a little in Indonesia and Australia.But in this year, mines in those countries were encountering difficulties Strikes, poweroutages and being forced to dig deeper into mines were increasing the cost ofexcavating, especially in South Africa This seems that the drop in production was onthe cards in 2012, and as we all know, fall in supply will lead to the rise in the price

87. The second one was the rise in demand The demand for gold iscomposed of three building blocks: Gold for technological applications (particularly indentistry and electronics), gold in jewelry and gold as an investment product 2011saw a 30% increase in demand for gold coins and this trend continued into 2012 as theglobal economy still looked gloomy Investors, to protect the wealth, intended to a safeinvestment like gold

88. The third reason was the central bank activities Central banks aroundthe world had bought some 150 tons of gold in the 3rd quarter of 2011 This was adramatic u-turn from traditional policy which was to sell Venezuela had been in thenews as leader Hugo Chavez began the process of repatriating the nation’s gold

supply Central banks were looking for gold because they were unsure about the status

of foreign debts with some nations threatening to default on loans

89. The next one is low interest rates The interest rates in all over the worldalmost remained low in 2012 which reduced risks in investing in gold There was a co-tango between gold’s lease rate and interest rates which lead to a higher gold price.Investors also had low regard for hedging companies which put pressure against theprocess of hedging

90. In addition, one of the important reasons was the economic climate.Various bailout packages and quantitative easing measures took action and give someresults Typically, the economy of United States showed signs of recovery by thequantitative easing policy (QE3) in October 2012; the EU public debt has been moreoptimistic and the Chinese economy was not in difficulties after a hot growth period asmany experts considered They had the direct impact on gold price When the worldeconomy has overcome the crisis, the thoughts holding gold would be reduced, andthen it might lead to the downward trend in gold price in the next time

91. Finally, one more reason is jewelry Nearly 50% of the global demandfor gold focuses on the jewelry industry; it was account for about 2000 tonnes in4405.5 tonnes of total gold demand in the world Moreover, the two countries were theworld’s largest jewelry market, China and Indonesia, have been experienced increases

in demand of gold Although the physical amount of gold required for jewelry hasdecreased from 2011 to 2012 about 4%, the increase in price of gold means that thedollar demand was higher than ever

92. All the factors above indicate that the world gold price continue therising process following last 11 years The high level of gold price in the world createdthe psychology holding gold on individuals and businesses which directly and stronglyinfluences Vietnam’s gold price

4.2 Domestic influence

a. Demand and supply

93. Vietnam is a gold import country When the government set the goldprice lower than the equivalent world gold price, gold trading companies whose goldsource is available will export gold to gain profit In case, the domestic gold price ishigher than the world price, they will import gold to supply the domestic market.However, this source depends on the quota allowed by State Bank Thus, the supplyhardly meets the demand of gold, which forces gold price higher and higher.Speculation and smuggling make the price of gold in the country more difficult tocontrol

94. The gold demand in Vietnam includes: gold for jewelry, gold foraccumulation, gold for production and gold for investment They have the strong anddirect impact on the gold price in the market.

95. Since the gold bars were used in Vietnam’s gold market, they began to

be used as a profitable investment channel or as a form of payment instead of cash.The consequence of this development was that gold was manipulated by speculators,which pushed prices up and up about an average of 24% per year

98. In May 2012, the government announced the provisions of Decree 24about trading of gold bars, the government is exclusive in producing gold bars,importing and exporting raw gold and there is no discrimination between SJC goldbars and others Therefore, the gold bars including SJC or others are all recognized,protected by law and purchased, sold, exchanged in spite of discriminatory prices forother gold brands

99. In addition, Circular 16 and 14 of the State Bank on the management ofgold trading activities and regulation of credit institutions have to stop mobilizing andlending in gold, firms are not allowed to convert gold status in their account intophysical gold and they are just allowed to buy gold in the domestic market only.Consequently, the firm not only lost billions of dong but also did not contribute to thestate budget, causing gold fever

100. In short, the inconsistency in the regulation of the function of thegovernment in gold trading activities leads to many loopholes in gold trading activitiesand controlling gold prices in the country

c. Crisis

101. The macroeconomic situation is not stable in 2012 made people have atendency of buying more gold for accumulation and investment According toPlanning & Investment Ministry, 2012 witnessed 54,261 bankruptcies of enterprises,lack of capital in manufacturing, paralyzed banking, so investing in such thing as

immovable assets, stocks, and finance market was so risky that many investors chosegold as safe haven asset Obviously, the increasing in demand accelerated the goldprices.

d. Inflation

102. The inflation in Vietnam is reduced from 18.13% in 2011 to 6.81% in

2012, but it is still a big number and additionally, the prices of almost things in themarket have increased all the time especially gasoline and oil; so that, Vietnamesepeople have a strong belief that inflation rate would be high in the future Theyconsider gold as a perfect thing preserving the value Keeping gold at home is a long-standing habit of Vietnamese people and it seems that this habit certainly will befavored in the future

e. Investor’s psychology

103. The decision of investors can be affected by many factors When theyfeel positive about the market, they will invest more It seems that, Vietnamese peopleare likely to purchase more gold when the prices appear to rise However, with theunsteady and cautious psychology, if they hear any bad news like financial scandalsand corruptions, many of them will worry and might be lose everything For example,the capture of Nguyen Duc Kien and the reassignments of 4 senior leaders of ACB andEximbank caused a lot trouble for ACB bank and other financial banks Customers feltunsafe of their money and many of them withdrew to buy gold This sudden rise ofgold demand made the gold price have a high jump, widening the gap between thelocal and international price (5 million VND/tael)

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5 The impact of gold price fluctuation in Vietnam

5.1 Impact on real-estate in Vietnam

105.

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107. According to a legal term used in jurisdictions such as the United States,United Kingdom, Canada, Australia and New Zealand, real-estate is “Propertyconsisting of land and the buildings on it, along with its natural resources such as

crops, minerals, or water; immovable property of this nature; an interest vested in this;(also) an item of real property; (more generally) buildings or housing in general Real-estate also means “the business of real-estate; the profession of buying, selling, orrenting land, buildings or housing”.

108. Dr Nguyen Tien Dung, CEO of the Institution for ResearchAdministration identifies that higher gold prices greatly affect the real-estate market

• Gold is used as the unit of account in housing transactions:

109. According to a survey, in Hanoi, most of the real estate transactions are

no longer tied to the price of gold as before, but in Ho Chi Minh City, by contrast,paying these real estate transactions in gold is quite common As gold prices surge,especially when Vietnam dong is not reliable and safe enough, the individuals orinvestors must find ways to purchase real estate in gold or dollars instead The amount

of real estate transactions in gold is still up to 60% or 70%

110. When the gold price increases, the purchasers will need more money topay for the same amount of gold This gap is really a big burden especially when theprice of gold rockets and the amount is large This reality ceases the purchasers fromconducting their expected transactions because they believe that the price of gold isvery likely to keep rising in the near future and they may experience a great loss

111. Moreover, gold is also considered as the unit guaranteeing the value ofthe borrowing when people want to make a loan to purchase real-estate properties.This means that when gold price increases, they bear a much bigger debt than theyexpected, which leads to the same situation as mentioned above

112. Faced with the sharply rising gold price and current instability, estate market becomes very bleak Many of the transactions were deposited by gold inadvance but due to changes in the price of gold, these transactions have been broken orbust Home buyers or investors are very afraid of the sales that require payment ingold, because gold seems to increase in the future

real-• Gold is a popular means of speculation:

113. When the gold price spikes, more people moved from real-estate toinvest in the gold with the hope that the price of gold will continue to rise in the future.This resulted in reducing demand for real-estate and oversupply occurred The obviousresult is the market become immensely stagnant and dull, or even frozen

114. A part of the sellers wants to carry out transactions in gold and gainbenefits due to price difference

115. Given the situation of Vietnam gold market over the past two years inwhich the gold price varied unpredictably but had the upward overall trend, not only