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Gold Price Fluctuations in Vietnam in 2012

Gold has always fascinated the mankind’s imagination and influenced their urge to possess the same. Gold occupies a pivotal role in the social and economic life of poor and rich alike. In Vietnam, besides the economic and strong social considerations, individuals are highly sentimental about the gold jewellery in their possession, as the gold ornaments are passed on from one generation to another. Acquisition of gold is considered auspicious and necessary for making family ornaments to get a sense of wellbeing in our country. Gold is increasingly considered as an investment that appreciates over years and provides a hedge against. | Secondly, the increasing gold price encourages gold speculation. People would withdraw money from banks to buy gold to store up instead of depositing at banks. As a consequence, capital is concentrated in gold market; capability of mobilizing capital of the banks has been reduced. Besides, the client’s withdrawals from banks to speculate in gold will increase the amount of money in circulation, leading to higher inflation. Higher inflation means that the State Bank must implement monetary tightening to reduce the volume of money in circulation, but loan demand by businesses and individuals is still very large, banks can only meet applications for a few customers with signed contracts or really effective projects, under the level of risk allowed. On the other hand, due to rise in interest rate, this has worsened the investment environment of the banks, moral hazard will occur. As the purchasing power of Vietnam falls, the price of gold and foreign currencies increases, raising capital with a term of 6 months is really hard for each bank, while loan demand for medium and long-term is large, so the use of short-term loans for medium and long-term loans over time in each bank is not small. This has affected the liquidity of the banks, the risk term is unavoidable.