BackgroundThe gold price in Vietnam has, for some time, been out of sync with the world gold price. It was about 13 percent higher as of Wednesday morning.
In a nutshell, this has come about largely through policy that stripped away power from the market, putting it in the hands of the State Bank of Vietnam (SBV), just over a decade ago, as part of a slew of measures to bring out of control inflation under control.
More specifically, it took the ability to freely import gold away from private enterprises and gave that power to the SBV alone.
What went wrong?
But the SBV didn’t exercise this power, leaving a very limited supply of gold in the market.
For perspective, in the ten years up to and including 2011, gold imports averaged 57.4 tons a year, according to Trade Map data.
Between 2013 and 2024, however, an average of just 3.74 tons were imported each year.
But this didn’t matter so much for a while.
The 2010s were a boom time for Vietnam, and with the economy going gangbusters, consumers had plenty of other investment options — the stock market, real estate, and bonds, for example.
Fast forward a decade or so, however, and back to back to back crises — Covid, the war in Ukraine, and the collapse of the bond market — created broad economic uncertainty.
Well known as a safe haven asset, investors pulled their money from elsewhere and ploughed it into gold.
As demand skyrocketed over supply, the price shot up, which drove even more interest, driving the price even higher. This was to the point that gold shops were reportedly faced with queues of people waiting for hours on end to buy the precious yellow metal, often turning people away.
People were, of course, not happy about this, and it became a point of tension with public debate consumed by it.
The policy response
The simple solution would have been to import more gold.
However, this would mean spending US dollars with knock-on effects on the SBV’s broader macroeconomic goals — reserve dollars spent on gold would mean less room to defend the dong’s crawling peg, risking higher inflation.
To boil that down, there could either be less gold and less inflation or more gold but also more inflation.
Of course, neither of these is politically palatable, which has led to the current situation where everything has just kind of stopped where it is with policymakers trying to remove the logjam by jawboning as opposed to embarking on long-term reforms that might upset the broader public.
A similar story across the board
It’s not just the gold market, either.
Fuel is cheaper in Vietnam than in a lot of other places in the world, so people can use their vehicles more freely; however, pollution has become a hot-button issue.
Rather than raise fuel prices to discourage fuel use, the policy response, at least in Hanoi, has been to ban petrol-powered bikes from the inner city.
In real estate, developers of social housing projects have their profits from any one project at 10 percent to keep house prices down.
However, in practice, it has meant developers have avoided taking on these projects. This has limited supply, which has subsequently pushed up prices.
In electricity, a reluctance to raise power prices when input costs jumped on the back of the Ukraine war led to power being sold below cost. This meant less money for investment in new power generation, which has seen power cuts in peak summer periods.
All of that is to say, that the problem is not so much policy, it’s populism: trying to keep everyone happy all of the time. A near-impossible objective, that if not abandoned, will see long-term sustainable market functionality remain elusive.
