With domestic gold prices far higher than world levels, the demand has weakened due to risk aversion. Therefore, there is reason for businesses to worry that they could not sell the metal after they win a gold auction held by the State Bank of Vietnam (SBV).

Why did they fail? In the three SJC gold auction sessions organized in late April by the SBV, two sessions were canceled due to little interest of businesses, with only one successful session done on April 23, but with two out of 11 participating businesses winning the bid for a mere 3,400 taels (*) out of a total of 16,800 taels of SJC gold offered. The first reason for the failure of the gold auctions is possibly the high reserve price set by the SBV, which is unattractive to businesses. Specifically, on April 22, the reserve price was VND81.8 million a tael, VND80.7 million on April 23, and VND82.3 million on April 25. These prices were almost on par with the then market prices, so clearly, they did not help bring down domestic gold prices. Secondly, the minimum bidding volume was seen as too high. If they win an auction but take late delivery of gold from the SBV or take timely delivery but do not sell it in time, businesses would be exposed to the risk of world gold prices dropping. The widening gap between the selling and buying prices of SJC gold, which has expanded to VND2 million a tael recently, partly reflects the risk that gold trading businesses are currently concerned about. In fact, the international gold market has seen signs of a correction. Soaring to a high of US$2,431 per ounce on April 12, the spot gold price has hovered around that level before plunging by US$64 per ounce, equivalent to a 2.7% decrease on April 22, which is the same day the SBV held the first gold auction. This sharp decline triggered technical indicators signaling that the market had entered a correction phase, at least in the short term. Currently, with domestic gold prices far higher than world levels, the demand has also weakened due to risk aversion. Therefore, there is reason for businesses to worry that they would not be able to sell the amount of gold purchased from the SBV. Moreover, many people are now more inclined to buy gold rings rather than gold bars, not only because of better prices but also because gold rings can be used as fashion items. Therefore, the amount of SJC gold bars that the SBV brought to auction is no longer as attractive as before. Gold reserves in Vietnam There is a high risk of not being able to receive gold sold by auction by the SBV in time or at all since the SBV announced, “In case the SBV cannot procure gold from the international market due to insufficient supply from partners to meet its demand for gold auctions, the SBV shall cancel the auction results.” Therefore, businesses have little appetite to actively join such auctions. However, this precautionary note seems to be more of a distant possibility, as the SBV’s foreign exchange reserves currently also have a certain proportion of gold, so the central bank may not resort to purchasing gold from abroad to meet the auction results. According to statistics from the global data provider CEIC, updated by November 2023, the total value of gold in Vietnam’s foreign exchange reserves is more than US$666 million. This is a record high level, showing that Vietnam is also following the general trend of central banks worldwide to diversify foreign exchange reserves partly into tangible assets such as gold. Compared to the end of 2022, CEIC data showed that Vietnam’s gold reserves have increased by an additional US$75 million. If converted at the price of VND82 million a tael and with the exchange rate of VND25,450 to the dollar, this US$666 million is equivalent to a gold volume of nearly 207,000 taels, more than 12.3 times the amount of gold that the SBV offered at each of the three auctions. Therefore, concerns about the SBV’s possible decision to cancel auction results due to insufficient gold supply do not make sense. In fact, the biggest issue with the gold auctions lies in the first reason. The exorbitant reserve price disincentivizes businesses from participating. The gold auctions held in previous years by the SBV were mainly intended to help credit institutions improve their gold holding status, so prices were determined based on market levels. However, the most recent gold auctions aimed to narrow the gap between domestic and world prices, so setting a reserve price based on market levels did not work. However, from the perspective of a regulator, the SBV may not want to face legal risk in terms of policy implementation, because if the reserve price is too low compared to market levels, there should be regulations allowing for budget losses, if any. In addition, supplying the market through auction, even if it meets procedural requirements, seems to serve more of a psychological relief purpose than truly increasing supply to the market. The author of this article wonders whether instead of organizing auctions for qualified businesses with high reserve prices, if gold supply by the SBV flows into the market by distributing and selling gold directly to gold distributors and shops across the country at prices that these shops can currently afford, would the policy be more effective, as this gold supply might be better absorbed at better prices. It is possible that when gold distributors and shops suddenly receive this new supply, while the demand remains low, they could reduce their prices, thereby narrowing the gap between domestic and world prices. In addition, it is possible that currently, gold supply may not be short compared to demand, but gold distributors and shops still keep prices high to seek profits from large discrepancies, as well as to limit risks from world price volatility. Therefore, the policy of selling gold directly to distributors and shops, if implemented, might be a way to test the actual demand on the market.