Mr. Phan Dung Khanh, Director of Investment and Consultancy at Maybank Kim Eng. Securities Co. (MBKE), discussed with Saigon Investment about gold price forecasting and surfing risks.
JOURNALIST: - Do you think the price of gold will become stable again when stress is showing signs of cooling down?
Mr. PHAN DUNG KHANH: - Gold prices have decreased in recent days, and in addition to the on-going US-China trade war, it has also been impacted by China reducing its gold collection. According to a report by the People Bank of China (PBoC), the country's gold reserves are currently at 62.64 million ozs, unchanged from the previous month. Thus, the PBoC did not buy more gold. However, there is still a possibility that gold prices will increase in the medium and long-term when the world is still potentially unstable. Besides, the fact that central banks are printing too much money and racing to lower interest rates has increased the anxiety of a monetary war. These are factors that can drive up gold prices.
Besides loosening monetary policy, defensive demand has led central banks and financial institutions such as investment funds to increase gold reserves at a historic high ratio. Gold is considered a safe haven, so the purchase of gold is part of the central bank's measure. If these factors remain, gold price is likely to increase in the near future. Domestic prices are mainly influenced by world prices, and exchange rates and related policies will be affected accordingly. Depending on domestic demand as well as policies, this level may be stronger or weaker but the general trend is still to follow the world price.
- Actual domestic demand for gold is still quite small. What do you think about this?
- The domestic gold market currently has much lower demand than the world market. Even at the time when the world gold price increased sharply, the domestic demand for gold increased even more than normal but was far behind the golden age nearly ten years ago, when there were people carrying money sacks to buy gold.
There are many reasons for low domestic demand for gold. The first reason is the policy problem when gold deposits are not profitable and there is even an additional charge for gold deposits. Many gold companies turned to trading gold jewelry and narrow gold bars. Many investors buying gold in the period 2010-2012 are still reeling from losses. Meanwhile, investment channels like real estate and securities are attracting huge amounts of money. In particular, a large amount of money is focused on the bonds channel.
- Currently, some investors participate in surfing on illegal gold floors and won big in the last gold price movement. Do you have any advice for investors who are participating in this golden surfing?
- Firstly, it is necessary to know that gold prices are in a downtrend, and short-term investors can easily face losses. The difference between buy and sell price is now higher than in previous years, which also causes high risk. Then, the domestic and world gold price sometimes clashes with each other, making short-term investors hardly earn any profit or even lose. In addition, the exchange rate is stable for many years. Therefore, short-term surfing is riskier than medium and long term.
Regarding some investors participating in surfing on illegal gold trading floors, it is necessary to recall that in 2010 the SBV officially banned the trading of gold accounts, which means that gold trading accounts in Vietnam are not recognized by the law and are therefore not protected. Many investors who trade in gold accounts are rich, but only rich on paper.
Because the margin ratio of gold trading floors is very high, the risk of loss is also very high. If you play securities with a margin of 1:1, the derivative market is about 6:7, covered warranty 1:10, and margin on the gold floor is 1:100 times. In some cases, VIP accounts get margin rates upto 1,000, or even 10,000 times. Therefore, investors will suffer in billions with just one small mistake. There is not even a concept of loss, only the concept of bankruptcy which is the main one.
In fact, up to 90% of the gold trading floor tricks investors in many ways, such as fixing orders, intervening orders, fixing prices, or worse "unplugging power", intentionally collapsing the floor, hug money and run away, and not to mention illegal unlicensed gold floors.
- Thank you very much!