The gold price in Vietnam is more often than not much higher than it is in the rest of the world. In fact, in 2023, at its peak, it was around 20 percent higher owing to a number of factors including the limited supply, huge demand, and a regulatory environment that often struggles to balance the two.

With this in mind, this article looks at the gold price in Vietnam. It breaks down what is creating supply challenges, what is driving demand skyward, and what is being proposed to address these issues.

Supply limits

Between 2008 and 2011 Vietnam’s economy experienced extreme fluctuations. The local currency devalued rapidly and inflation rose dramatically hitting 18.7 percent in 2011.

In response, Vietnamese investors moved to preserve the value of their savings by swapping their unstable Vietnamese dong for generally more stable gold and US dollars. However, this in turn put greater pressure on the dong which led to even greater demand for safe haven investments–a downward spiral was forming that Vietnam’s leadership was keen to arrest. To do this the government embarked on a series of economic reforms.

One of these reforms was Decree 24/2012/ND-CP–Decree 24–issued in April of 2012, regulating the gold trade. 

Technically speaking, Decree 24 gave the State Bank of Vietnam–the SBV–a monopoly over the import and export of gold and the pressing of gold bars. A monopoly the central bank outsourced to the Saigon Jewelry Company–SJC–owned by the Ho Chi Minh City People’s Committee. It went on to shut down all other non-SJC gold bar production.

In theory, the SBV could thereby prevent Vietnamese investors from swapping their dong for gold by choking off the supply–investors couldn’t buy gold if there was none for sale.

In reality, however, the cut in supply saw markets respond to the scarcity, as they are wont to do, by raising prices. As a result, by September of 2012, the domestic gold price was at an all-time high and this was significantly higher than the world gold price.

That said, by the end of the year gold prices and the exchange rate had started to level off and the gold fever that had gripped Vietnam through 2011 began to subside.

Correlation, however, does not necessarily mean causation

That is to say that Vietnam’s economic challenges in 2011 were in large part due to broader global economic challenges linked to the Global Financial Crisis in 2008. Governments around the world were instituting their own responses to their flagging economies, not to mention, Decree 24 was not the only step the Vietnamese government took to curb rising inflation.

The point being, which reforms, where, did what, is difficult to pinpoint. And, in light of recent events in the gold market in Vietnam (see below), the efficacy of Decree 24–which is still in place today–in curtailing the economic downslide in 2011 seems questionable.

Demand drivers

The events in 2011 that saw gold prices in Vietnam skyrocket, however, were not just linked to how the gold supply was managed. In Vietnam, there is also an unusually high level of demand for gold. This is driven by a combination of factors including a perception of gold as a safe haven asset, a lack of other investment vehicles, and a deep-seated cultural relationship with one of the world’s most heavily traded elements.

Historical relationship

Older generations of Vietnamese, particularly those who lived through the period before the major economic reforms undertaken in 1986, have a preference for gold as a store of wealth.

That is to say, bank runs have not been uncommon, inflation has at times been erratic, and economic decision-making has often been far from transparent. As a result, there is a level of distrust of Vietnam’s financial system that a myriad of reforms have failed to shake loose.

Furthermore, gold is also easier to smuggle and very valuable just about everywhere in the world, a plus should an individual need to relocate quickly.

Speculation

Gold speculation is common in Vietnam on the back of a lack of other high-quality investment options.

For example, the stock market is still considered a frontier market and only offers relatively basic stock trading options. It’s also prone to misuse–in 2023, there were a number of arrests made for stock market manipulation. Furthermore, it’s a relatively new way of investing in Vietnam with barely a couple of decades of development under its belt.

Then there is the real estate market. Its current woes aside, real estate is well beyond the means of most Vietnamese for personal use, let alone investment. It’s also highly illiquid.

Gold on the other hand can be traded quickly and easily and in very small quantities.

See also: Vietnam’s Financial Sector: An Overview 2024

Cultural value

A third driver of the gold price in Vietnam is its cultural value. The tenth day of the lunar new year, for example, is dedicated to the God of Wealth. On this day it is customary to purchase gold under the understanding that this will bring the buyer a prosperous year. This sees long lines at gold shops all over Vietnam and can cause prices to spike.

Furthermore, wealthy Vietnamese are prone to flaunt their wealth. Owning items made of gold–ornaments and jewellery, for example–or giving gifts made of gold are also common and make a statement about a person’s status which can be very important for affluent Vietnamese.

The point being, that buying gold is not necessarily a rational economic decision but driven by a whole range of non-financial factors as well.

The gold price in Vietnam in 2024

Nearly 13 years after Decree 24 was issued, the challenges it was designed to address have resurfaced. A dip in Vietnam’s economic fortunes that has been consistent since the beginning of the COVID-19 pandemic has seen the local gold price shoot up again, reaching record-breaking highs–in October the gold price in Vietnam was more than US$600 higher than the world gold price.

This has not gone unnoticed either with members of the National Assembly calling for reform of the gold trade in Vietnam.

Specifically, it’s been proposed that SJC’s monopoly over producing gold bars be removed. This would see more businesses licensed to import gold which would increase supply and subsequently bring down prices. 

It’s also been suggested that a system of gold certificates be introduced whereby banks can hold gold for investors who in return provide them with a tradable gold certificate, though it’s not clear exactly how this might help.

Furthermore, an increase in supply could see upward pressure on inflation as buyers moved to trade in their dong for gold bars.

All of that said, the further out of the world gold price’s orbit Vietnam’s gold price gets, the greater the impact of any reforms–the bigger they are the harder they fall. In this light, reform sooner rather than later may be a good idea.

Gold Loans

Decision 432, issued in the year 2000, by the then Governor of the State Bank, empowered banks to borrow and lend gold. Banks would essentially collect gold from consumers and then use said gold as collateral to borrow from other banks. This pushed up the price of gold by spurring consumer demand–not only did it hold its value but consumers could also deposit their gold in the bank and receive interest. However, as part of the aforementioned gold market reforms, this practice was effectively banned in 2012.

Gold Auctions

In 2013, the State Bank of Vietnam started auctioning gold from its reserves to a number of financial institutions to try and bring down the domestic gold price. This was snapped up quickly with the bulk of said gold used by banks to return gold deposits made by their clientele under the gold loan scheme outlined above that had now been banned.

This is pertinent in that attempts were made to bring down the gold price in 2024 by holding gold auctions again, however, this time around they were largely unsuccessful. Just 48,500 taels of gold–about 1.8 tons–were sold, less than half of the roughly 117,600 taels on offer. These were abandoned toward the end of May when the State Bank decided to inject gold into the market by selling to Vietnam’s ‘Big Four’ banks to then sell-on to consumers directly.

What’s next?

Despite attempts by the SBV to stymie demand for gold in Vietnam by taking control of the gold supply, buyers have been undeterred. As a result, the gold price in Vietnam, though somewhat influenced by the world gold price, more often than not, moves to a beat of its own making.

The import-export opportunity this presents, however, may be difficult for foreign traders to access in the current regulatory climate. That said, there are companies that profit from higher gold prices, like jewelry firms, listed on the Ho Chi Minh Stock Exchange through which foreign investors may be able to indirectly invest.

Finally, with reforms being openly discussed and clear overtures made by key decision-makers toward closing the gap between local and world gold prices, change may be afoot. That being the case, foreign firms interested in keeping abreast of developments in Vietnam’s gold market, should make sure they subscribe to the-shiv.

Updates

May 30 2024: Added sections on gold loans and gold auctions.