Looking back at the gold and USD market in the first quarter

(Baonghean) - The world gold price increased sharply and the domestic gold price approached the world gold price; while the flexible central exchange rate went up and down and there was no fever or coldness, these are the new highlights in the foreign exchange market in the first quarter of 2016...

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World gold prices increase and narrow the gap with domestic gold prices

From the beginning of 2016 to mid-March 2016, world gold prices increased by more than 18% in the context of a weakening USD and investors' uncertainty about the US interest rate hike roadmap.

The sharp increase in world gold prices in the first quarter of 2016 was also linked to concerns that China emphasized its monetary easing policy to stimulate the economy through the Chinese central bank lowering the required reserve ratio, while real estate transactions in the US decreased (home purchase contracts in the US in January 2016 fell to the lowest level in a year), while there was a continuous increase in buying by many gold investment funds in the world. The amount of gold held by the world's largest gold exchange-traded fund, SPDR Gold Shares, continued to increase, reaching 22.3 million ounces as of February 4 - the highest level since late October 2015.

World gold prices peaked at $1,260.6 an ounce on February 11, 2016, the highest since February 6, 2014, due to volatile stock markets increasing demand for safe haven assets.

Notably, on March 1, 2016, the SPDR Gold Shares gold trust fund continued to buy 14.87 tons of gold, the 22nd consecutive purchase by this fund since the beginning of this year. As of the end of February 2016, this fund is holding a total of 777.27 tons of gold.

Also at this time, the world gold price converted according to the listed exchange rate in commercial banks of 22,335 VND/USD is 33.54 million VND/tael, while the domestic gold price is trading at 33.65 million VND/tael, increasing more slowly than the world price, helping the price of SJC gold bars, for the first time in many years, to be only about 100,000 VND/tael higher than the world price (excluding taxes and fees if gold is imported into Vietnam). In other words, for the first time in many years, the price of SJC gold bars has returned to parity with the world price after excluding fees and taxes. At times, the price of SJC gold was even lower than the world price.

Faced with the prospect of policies to be introduced at the two-day meeting of the US Federal Reserve (Fed) on March 15-16 and the meeting of the Bank of Japan (BoJ), on the afternoon of March 14, Asian gold prices rose again, nearing the 13-month high of last week. The spot gold price in the Asian market is at 1,228.5 USD/ounce, down nearly 20 USD/ounce compared to the previous session. Converted according to the exchange rate of Vietcombank on the morning of March 15, the difference between the world gold price and domestic SJC gold price widened to about 600,000 VND/tael. The world gold price decreased to 1,231 USD/oz, equivalent to 33.11 million VND/tael, down about 650,000 VND/tael compared to 3:00 p.m. yesterday.

After the US Federal Reserve (Fed) announced to keep interest rates unchanged, the USD weakened and immediately, the international gold price was activated and jumped 2.3% to 1,260 USD. Therefore, on March 17, the gold price in Vietnam skyrocketed again.

In summary, in the first quarter of 2016, the gold price was, is and will be at the threshold of 1,235 - 1,280 USD/ounce in 2016.

Flexible central rate is working well

The central USD/VND exchange rate is announced regularly every day by the State Bank and managed according to Decision No. 2730/QD-NHNN from January 4, 2016, with a margin of +-3%.

On the morning of January 4, after the State Bank announced the central exchange rate of 21,896 VND/USD. Banks simultaneously increased the USD selling price to nearly the ceiling (Vietcombank, Dong A Bank listed USD at 22,470 - 22,540 VND/USD. Viettinbank at 22,455 - 22,540 VND/USD; Eximbank at 22,450 - 22,540 VND/USD; ACB at 22,450 - 22,530 VND/USD for buying and selling).

As of March 1, the State Bank of Vietnam announced the central exchange rate decreased by 7 VND/USD compared to the previous session, at 21,907 VND/USD. The USD price in commercial banks is quite stable and commonly around 22,265 VND/USD for buying and 22,335 VND/USD for selling.

In mid-March 2016, the central exchange rate increased by 13 VND compared to the previous session, at 21,872 VND/USD, a decrease of 24 VND compared to the central exchange rate announced on January 4, the first day of applying the new exchange rate policy (21,896 VND/USD). However, the USD price at commercial banks remained stable.

Thus, in the first quarter of 2016, the exchange rate was adjusted up/down daily, with the level carefully calculated by the State Bank, ensuring flexibility, but still ensuring management in accordance with the managed floating exchange rate regime as defined in current foreign exchange management documents. This new exchange rate management method is being operated smoothly, increasingly more market-oriented and allowing the exchange rate to react more flexibly and promptly to domestic and international developments; reducing pressure to sell foreign currency to intervene in the market and other speculative expectations.

The new flexible exchange rate policy puts additional pressure on commercial banks and enterprises to improve their analytical capabilities and adapt to a more flexible and volatile market. Some banks and enterprises may be exposed to higher exchange rate risks if their policy analysis capabilities and market response are slow to improve.

In general, in the first quarter of 2016, the foreign exchange market was flexible in stability, long-term and for the common benefit; contributing to maintaining macroeconomic stability, supporting the stability and development of enterprises, strengthening market confidence and harmonizing interests in the current economic context. The State Bank has been closely controlling foreign exchange trading activities, preventing and limiting virtual demands and unreasonable foreign exchange demands, reinforcing expectations that the exchange rate in the coming time will continue to be stable, without fluctuations like "exchange rate shock".

In 2016, the financial market requires higher compliance with market standards and risk management. This opens up new opportunities and pressures for banks, as well as businesses in long-term business, improving efficiency and competitiveness.

Dr. Nguyen Minh Phong