Essay

Table of contents Contents Pages 1- Comments on the fluctuations of the gold price in HCM city in the past week 02 2- The causes of the gold price changing 03 3- Forecasts about the change of the gold price in the future 04 Gold is a such special goods that any changes of its price affect not only the economy of HCM city but also the economy of Vietnam in general. Recently, gold market in HCM city has had so many powerful fluctuations, specially in the past week (from March.17th 2008 to March.23rd 2008). Therefore, we only emphasize on finding out and analysing about the fluctuations of the gold price in the past week in this essays. Besides, we also analyse some forecasts about the changes of the gold price in the near future. 1 - Comments on the fluctuations of the gold price in HCM city in the past week: The fluctuations of the gold price in the past week have made investors cautious about their investment, specially, when Federal Reserve System (FED) declared the basic interest rate of USD down at 2.25% in March.18th 2008. Actually, some previous investor’s forecasts of FED about the decrease of the USD value and the increase of the gold and crude oil price have not come true. The chart of the gold price in HCM city and in the world in March. These above charts show: After increasing continuously in a long time and getting top (1,033.9 USD/ounce) in March.17th 2008, the gold price in HCM city and in the world decreased heavily several times (from March.18th 2008). The USD value increased in comparison with other common currencies. Consequently, the gold and the crude oil price decreased, while the gold price decreased heavily. In a week, the gold price decreased from over 1000 USD per ounce on March.17th 2008 down to 915.1 USD per ounce on March.20th 2008 , a unusual low price up to now (decrease over 100 USD per ounce). Consequently, the gold price in HCM city also decreased heavily, from 19.45 millions VND per tael down to 18.15 millions VND per tael at that time (decrease 1.3 millions VND per tael). However, the decrease of gold price level in HCM city was less than the one in the world, while the selling price in HCM city was higher. (According to the practical informations, the world’s gold price which is converted to the price in HCM city was 17.79 millions VND per tael, while the gold price in HCM city was 18.15 millions VND per tael). So what is the real cause of the reverse changing' 2- The causes of the gold price changing: The powerful adjustment of the world gold market in the past time is the instant reaction of the investment circle to the monetary policy of FED. Normally, when FED declares about cutting the basic interest rate, the USD value decreases so that the gold and the crude oil price increase. Investors knew that all things would happenned at the meeting of FED on March-18th 2008. To prevent that and to advance the gold and crude oil price, they invested in gold and crude oil market. Then, they sold gold and crude oil promotively for making a big profit, decreasing the price of gold and crude oil as soon as FED declared for cutting the basic interest rate of USD. Thus, the gold price-cutting and the statement of FED about cutting the basic interest rate of USD happened at the same time. 3- Forecasts about the change of the gold price in the future : In present situation, forecasts on the gold price are more complicated. The change of gold price is combination of many elements at another specific points. We will examine some main elements, which are able to affect the gold price in HCM city and in the world. The first element: Intervention of FED At present, American economists have two opinions about powerful intervention of FED in the market, such as: cutting the basic interest rate, concentrating money on financial system... + If the operations of FED are successful : The American economy will be restored, the securities market will rise and the gold market can run down its attractions. Consequently, the role of gold will slow down. However, FED also emphasizes on inflation in the previous statement about the basic interest rate cutting on March.18th 2008. Actually, the basic interest rate of USD was cut (at present in level of 2.25%) and a large amount of money was transfered to the financial system, it means the USD value will run down. However, raw materials, such as crude oil, are traded by USD. As the result of this, the inflation pressure is high not only in USA but in other countries as well. And at that time, gold channel is a safe one when inflation happens. Therefore, FED was successful in rebuilding the American economy, which they expected. Howerver, the major problem is that the economical situation of USA can drown inflation, or not. It depends on the calculation ability of FED to choose the time higher or lower the interest rate on time. If the inflation is only secondary, the gold price will be disadvantageous. If the inflation is important, the gold price will have many chances to increase. + If the operations of FED are failed: In the different angle, the groups of observers who have the less optimistic angle said that, the interventions of FED is not sure to win, because the debt crisis in USA depends on real estate market a lot, but the impetus decrease of house’s price is forecasted to be continued in more time. If so, American economy is going to regress, even regress deeply, the USD is depreciating, and the world securities market is falling down continuously. Moreover, FED has to continue cutting the series of interest rate, which make USD to depreciate seriously. All of those elements are useful for the gold price. On the other hand, the regressive economy of America and the global economic growing are slowed down and they are synonymous with requirement of goods, such as gold and crude oil, at last they will lower and make price down. Thus, forecasting about the gold price in the future is more complicated. The second element:The gold price is also affect of the supply in the world market. Producing of gold in the world, specially is South Africa, is having narrow tendency, because of the cost labor has increased and some other difficulties. Although International Monetary Fund (IMF) is going to sell 500 tons of gold, it does not affect the market, because 500 tons is not a large amount. The third element: the gold demands in the world market. Firstly, in the insecure economy and inflation nowadays, the gold channel is a fascinating investment channel because its profit is higher than other channels. In addition, the China and India economies are developing nowadays. In the meantime: • The gold’s demand of the Indian was 23% of the gold’s demand in the world and [be foreseen] it is going to increase to 33% in 2008. • The Chinese’s saving habit is upholded today. With two reasons above, the gold’s demand in the world market will be possibly increased in the future. The fourth element: Inflation is still in many countries on the world There are two main reasons: The first reason: Expenditures of the White House are excessive for the war against terrorists, even though, the American economy is rising unsteadily. This contributes to create the American economy’s crises and increase inflation. The second reason: Demand for energy, such as crude oil, gas, etc, will not decrease in the future. In the meantime, exploitation output could not increase. Therefore, energy value will be intensively high and keep world inflation. The fifth element: A different important problem is policy currency of other countries. The European Centre Bank (ECB) does not intent lower the interest rate of Euro. So it make USD depreciate more than Euro and the price of gold rise. Therefore, the change of the gold price in the future is depended on regulation of basic interest rate cutting of EURO from ECB or not. Moreover, the curency policy of many countries is going to reduce the USD’s power because they do not believe in USD any longer. Many countries have a reserve of big foreign currency, such as the Arab states of Persian Gulf, China, etc. Therefore, they can invest in different lines instead of USD, such as gold. All of them have made the USD value fall seriously and the price of gold been supported. The sixth element: Psychology of investors. The gold market in the past time changed easily, because the psychology of investors usually changes. Investors always have so many different reactions to a same event at different time For example, when FED emphasized on the inflation, FED was not thought to be cut the interest rate more than. Therefore, the USD value increased and the gold price decreased. However, in the Asian market on March.21st 2008, the gold of price had an increasing tendency when investors thought that buying gold should be done, because the inflation could happen. Another example, a powerful adjustment in the securities market could make investors sell gold for loss relief or speed up buying gold to against the decline of securities market. In brief, combination of those above elements is making unguessable developments to the gold market in HCM city in particular and in the world in general. The gold price at different points will depend on the main element which can overpower the others at that time. Accordingly, experienced economic specialists are careful in forecasting. Maybe time will give an exact answer. In present market of Vietnam, investors should describe carefully, as real estate market is freezing, the USD value is decreasing and the securities market is getting an increasing tendency. ----------------------- The Gold price in the World in March ( From www.kitco.com ) ( Data from http://www.eximbank.com.vn/vietnam/ )