Vietnam National University University of Languages and International Studies - - ENGLISH FOR FINANCE AND BANKING FINAL ASSIGNMENT CASE STUDY Student Name: Lê Thị Tiên Date of birth: 22-10-1998 Student ID: 16031539 Hanoi, 2020 TABLE OF CONTENT I II Introduction The purpose of the report: 2 Background information about the case: Analyze: The situation of the fluctuation of gold price: 2 Causes of gold price surging: The impacts of domestic gold price surging on economics The response of the government Recommendation a Prediction: b Recommendation: III Conclusion: IV Reference I Introduction The purpose of the report: In this report, I will give an overview of the domestic gold price situation under the impact of the Covid-19 pandemic, then analyze the causes and effects of the fluctuation of gold prices in the first half of 2020 And finally, I will recommend some effective investment strategies for investors and appropriate market stabilization policies for the Government Background information about the case: In the first half of 2020, in the context of many objective impacts such as political instability, or the outbreak of the Covid-19 pandemic, investors have flocked to find safe assets such as precious metals, especially gold Because of the high demand for gold on the world market, the price of gold continuously escalated, many times breaking the record high, and the domestic gold price was also affected Domestic gold prices in the first half of July 2020 also fluctuated in a strong increasing trend, mainly due to the impact of the rise of world gold prices The domestic price of SJC gold has also repeatedly exceeded the record high price, especially when it increased to more than 62 million dong/tael II Analyze: The situation of the fluctuation of gold price: Domestic and world gold prices in the first eight months of 2020 fluctuated strongly and set a new highest peak ever In general, the world gold price currently increases by about 40% in value compared to the end of 2019 The amplitudes of increase and decrease are strong, the average world gold price as of 24/7 increases by 4.31% compared to June/2020, the highest level within nine years since 2012 Besides, the domestic gold price in early 2020 also has many fluctuations, especially from July onwards The chart below shows the increase in the price of gold in the country during the first months of 2020: As can be seen, In the first half of July 2020, the domestic gold price increased sharply, the domestic SJC gold price exceeded and maintained the transaction above the threshold of 50 million dong/tael As of July 17, 2020, the selling price of domestic gold increased by 7.9 million VND/tael compared to the end of 2019 Domestic gold price ended July with an increase of nearly million dong/tael compared to the beginning of the month, and much higher than at the beginning of the year, when gold bars were traded around 42 million dong/tael According to the General Statistics Office, the gold price index in July 2020 increased by 3.49% over the previous month, up 20.89% over the end of last year, and by 28.57% over the same period last year However, July is not the first time gold has risen "hot" in the year Since the beginning of the year, there have been significant increases in gold, which is in February and July Opening the first session of August, the domestic gold price did not have much change compared to the level at the end of the week Accordingly, SJC still listed prices around 58 million dong/tael on the selling side The Eximbank also listed SJC gold bars at similar prices Domestic gold price on August 3, Phu Quy Company listed the SJC gold bar at the price of 56.6 -57.6 million dong/tael This price level remained in the buying direction and decreased by 100,000 VND/tael in the selling direction for the number of previous trading sessions In particular, the world gold price sometimes increased to over 2,089 USD/ounce, and the domestic SJC gold price on August 6, 2020, reached 62 million VND/tael, compared to the converted world gold price, the domestic gold price is higher to 5.8 million/tael (This is also a recent record difference) Causes of gold price surging: Firstly, the impact of the COVID-19 outbreak can be seen as the leading cause of the rise in gold prices in 2020 The COVID-19 epidemic broke out and spread around the world, strongly affecting all economies Measures of social isolation and segregation have resulted in increased supply chain disruption, narrowing both aggregate supply and demand and weakening growth drivers Besides, measures to combat the COVID-19 epidemic also increase the trend of financial-monetary easing through the explosion of financial support packages up to trillions of USD and cutting monetary interest rates … Under the strong impact of COVID 19 translation on the economic situation, investors needed to find a safe solution, and they preferred to choose gold This is the reason for the increasing demand for gold and leading to a rapid increase in the price of gold The next reason causing the fluctuation of the gold price is the decline in the value of USD With the influence of the Covid-19 epidemic, countries around the world have continuously launched economic relief packages to stimulate the economy in difficult times Typically, the US Federal Reserve (Fed) continuously "pumped" out of economic relief packages, with a plan of more than 12,000 billion USD and also this week, investors are waiting for a new stimulus package worth $ 1,000 billion after US GDP fell 32.9% to its lowest level in 100 years The money was launched massively, causing the USD to decline sharply, to the lowest level in the past four months The depreciation of the USD makes gold more attractive, especially for investors who buy gold with other currencies Finally, the strong increase in gold prices makes it difficult to adjust gold prices in a short time Along with that, the supply of gold in the domestic market is very scarce, forcing businesses to implement the strategy of pushing up the gold price and keeping the difference between the buying and selling prices at a high level to minimize the risk The impacts of domestic gold price surging on economics Domestic gold price fluctuations have caused many impacts on the economy Firstly, when the gold price goes up rapidly will make the gold market less active, there will not be many transactions occurring and lack of liquidity Consumption of gold, silver, and gemstone products will decrease and affect the sustainable development of the gold market and businesses in the gold, silver, and gemstones industries Secondly, speculation and hoarding of gold will also appear when the price of gold increases With a strong trend in the gold price, instead of depositing money in banks or buying goods and services to stimulate economic growth, people will withdraw money to buy gold to hoard to make a profit Moreover, the sharp increase in gold prices also affects the stock market When gold prices rise with attractive expected returns, securities companies not only monitor the gold market movements but also worry that some stock investors will change their portfolios to gold If more investors turn to gold, the stock market will suffer from a lack of liquidity, and this will affect the recovery and growth of the stock market and the economy Finally, the increase in the gold price will affect monetary policy The rapid increase in the gold price will indirectly affect the CPI increase, then signs of inflation will appear If the inflation rate does not fluctuate in the control area according to the general expectation of the economy, the State Bank will have to implement some options to control this situation For example, the adjustment of the base rate and the required reserve ratio, the total means of payment of the economy to curb inflation The response of the government Domestic gold prices in the first half of 2020 had many fluctuations However, right after the price increase peaked, the gold price started to drop The transactions of buying and selling on the market are normal, there was no phenomenon of people rushing to buy gold, everything was still under control Therefore, currently making the adjustment policies is not necessary According to the State Bank: "The State Bank will continue to closely monitor the gold price movement in the market If there is any abnormal situation, the State Bank will have solutions and sufficient resources to stabilize the market".In the coming time, the world gold price may continue to fluctuate unpredictably, mainly depending on the complicated developments of the COVID-19 epidemic globally, as well as the political situation in the world If there are unusual developments, the State Bank will propose several solutions to intervene and stabilize the domestic gold market The first solution that can be proposed is to export gold from the national foreign exchange reserve to increase the supply of gold to lower the domestic gold price However, the State Bank needs to carefully consider the gold export based on the gold in the foreign exchange reserve World central banks often maintain a certain percentage of each asset in their foreign exchange reserves to take into account the risk fluctuations of each type of asset in each period Therefore, if the State Bank wants to export gold in the foreign exchange reserves, the holding rate of gold will fall below the target level that they set This forces the State Bank to export gold if it wants to export only to a small extent The second solution is to use the existing USD in the foreign exchange reserve to import gold from the international market But this way will cause a loss of foreign exchange reserves, which is very difficult to implement and can see in the times when the State Bank has to consider whether to intervene to stabilize the USD / VND exchange rate The need to use USD in the foreign exchange reserve to intervene in the domestic gold market must consider more carefully when the risk of the VND exchange rate remains, although it has been somewhat reduced for the time being thanks to the trade surplus and the weakening of the USD in the international money market Recommendation a Prediction: With the current trend of gold prices, the gold price is still in an uptrend because it depends on many objective factors Issues related to politics in the world as well as the complicated developments of the Covid-19 epidemic continue to affect the global economy That is why gold will still be a safe choice for investors The market is in erratic ups and downs, but in the long term, uncertainties will lead to an increase in gold prices b Recommendation: Faced with strong fluctuations in the domestic gold price, some measures to control this situation need to be taken First, we need to try to control the price of gold For the highly volatile gold market, the requirement is to narrow the gap between domestic and international gold prices This helps curb inflation and stabilize the gold price To this, the State Bank needs to pay attention to the exchange rate fluctuations that affect the gold price Besides, the State Bank of Vietnam needs to closely monitor the fluctuation of gold domestically and internationally to have timely solutions under the context of gold price increases III Conclusion: In summary, only in the first eight months of 2020, it can be easily seen that the domestic gold price has had many significant fluctuations, especially the effects of Covid-19 and the world gold price In the context of the current gold price increase, the State Bank needs to take certain measures to stabilize the price of the Vietnamese gold market IV Reference Devyani,M (2020) Why Gold Price is Increasing? 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Retrieved from: https://baodansinh.vn/gia-vang-se-di-ve-dau-sau-khi-lien-tiep-pha-vo-cac-kyluc-4202098102414536.htm ... from:https://vnexpress.net/nhieu-he-luy-khi-gia-vang-tang-cao-2708348.html Thanh, L.(2020) N gân hàng Nhà nước: đủ nguồn lực để bình ổn thị trường vàng Retrieved from: https://tuoitre.vn/ngan-hang-nha-nuoc-du-nguon-luc-de-binh-on-thi-truong-v