Gold bar auction, will the gold market "dance" less?

The State Bank’s auction of SJC gold bars is information that has received great attention from people, businesses, and especially investors. In fact, what they are interested in is not necessarily the special thing when the gold auction is held again after more than 11 years, but the issues of the gold market after these auctions.

Simply put, the SJC gold bar auction is to increase the supply of this precious metal to the market, thereby increasing the assurance of the supply-demand balance, which directly affects the price. Gold is considered a "shelter" for cash flow when other investment channels have problems. Faced with the complexities of the world situation, international and domestic gold prices have almost "jumped" simultaneously. In just 4 months, the world gold price increased by 16%, the domestic gold ring price increased by 25% compared to the end of 2023. SJC gold bars were at times close to 85 million VND/tael, gold rings reached 79 million VND/tael. Each tael of SJC gold bar is currently priced about 10 million VND higher than the world gold price.

Anyone who follows the gold price will notice that the closer to the gold auction date, the less the domestic gold price “dances”. In fact, in the last 3 days, the gold price has almost “stood still”, in complete contrast to the strong fluctuations before. From the perspective of gold investors, the auction will cause the SJC gold price to decrease, at least for a certain period of time. And the “quiet” gold price in the past few days is one of the signals.

The purpose of the gold bar auction is to intervene and handle the price difference between domestic and international gold. However, many financial experts believe that investors should not put too much hope in the possibility of significantly reducing domestic gold prices after the first auction today.

Firstly, the reference price for gold bidding is 81.8 million VND/tael. To win the bid, participants must have the best price. This means that the price of SJC gold on the market will remain high, possibly in the range of 82-83 million VND/tael for a while longer. Secondly, nearly 17,000 taels of gold, which sounds very large, is only about 700 kg of gold. Many experts believe that this amount cannot meet current market demand. Therefore, the gap between domestic and world gold prices after today's auction may be narrowed, but the extent to which will depend on market feedback.

In fact, out of 10 people who analyze gold auctions, all 10 believe that this is only a temporary solution. A simple reason is that gold reserves are limited, while market demand is always high. Furthermore, while countries are increasing their gold reserves, "opening the vault" to take out gold reserves for auctions in the long term can cause long-term consequences. Gold auctions can create short-term peace of mind for investors, but the most fundamental, long-term and internationally consistent solution is to allow free import and export of gold, and allow free production and trading of gold on the basis of applying appropriate management measures and tax policies.

However, this import story needs careful calculation, because it will significantly affect foreign exchange reserves, increasing pressure on foreign exchange rates.

In 2022, at the National Assembly forum, a delegate wondered if the monopoly of the SJC gold brand was the reason why the price of this type of gold was always very high. Today, when the State Bank conducted a gold auction, the issue of "SJC brand monopoly" was once again mentioned. It is also gold bars, also the same mold, but if it is not the SJC brand, the selling price is always lower. Therefore, stabilizing the price of gold bars needs to take this factor into account. At the meeting of the National Financial and Monetary Policy Advisory Council at the end of March 2024, the State Bank proposed to remove the mechanism of the State monopoly on gold bar production, and to grant licenses to produce gold bars to a number of qualified enterprises. If this proposal is approved, the domestic gold bar market will certainly have many changes.

Whether to allow gold imports or not, to eliminate the monopoly of the SJC gold brand or not, that is a story of the future. With the gold auction taking place this morning, perhaps today, the market will begin to send out response signals.