Closing the trading week, the gold market recorded a remarkable increase when the world price rose to 4,341.3 USD/ounce, 299.6 USD higher than the end of last week. In terms of proportion, the precious metal has increased by about 7.4% in just one week.
The strong upward momentum of the international market also pushed domestic gold prices up. However, the increase on the listed price has not turned into corresponding profit for gold buyers. The main reason lies in the fairly large gap between buying and selling prices at enterprises.
Prices increase by millions of VND, buyers only break even
Closing the week, Saigon Jewelry Company SJC and DOJI both listed SJC gold bars at 141-144 million VND/tael (buying - selling), a difference of 3 million VND/tael in both directions.
Compared to the end of last week (August 2), the buying price at the two enterprises increased by 4 million VND/tael, while the selling price increased by 3 million VND/tael.
At first glance, the increase of 3-4 million VND/tael in a week is quite large. However, for people who directly buy gold, the profit calculation is completely different.
On August 2, buyers had to spend 141 million VND to own a tael of gold bars. By August 9, businesses bought back at a price of 141 million VND/tael. Thus, although the listed price has increased sharply, buyers after a week are still just enough to break even.
This stems from the fact that investors always buy gold at the selling price of businesses, but when selling it, only the buying price is applied. The difference of about 3 million VND/tael therefore becomes a cost that gold prices must increase enough to compensate.
With gold rings, the situation is somewhat more positive, but profits are still very low.
DOJI currently lists gold rings at 141.2-145.2 million VND/tael, 4.2 million VND/tael higher in both directions compared to the end of last week. Gold ring buyers at this business on August 2 with a price of 141 million VND/tael, if resold on August 9 at 141.2 million VND/tael, only make a profit of about 200,000 VND/tael.
Meanwhile, Phu Quy gold rings are listed at 141-144 million VND/tael. Compared to August 2, the buying price increased by 4 million VND/tael and the selling price increased by 3 million VND/tael. Buyers from last week to now have also just reached a break-even point.
Buy-sell spread creates high "capital balance threshold
The developments of the past week show that the increase in gold prices does not mean that the profits of buyers have increased correspondingly.
With gold bars, the buying-selling distance is currently at 3 million VND/tael. With some types of gold rings, the difference is up to 4 million VND/tael. This means that immediately after buying, gold owners have to face a significant difference if they want to resell immediately.
Assuming the gold price does not change, buyers may lose exactly the same distance. The market price must then increase by another 3-4 million VND/tael, depending on the product and business, to bring the investment back to the breakeven point.
This is also the reason why in the week that world gold prices increased by nearly 300 USD/ounce and domestic gold increased by millions of VND per tael, gold bar buyers at some businesses have not yet made a profit. With gold rings, the profit of 200,000 VND/tael is also very small compared to the initial capital scale of more than 140 million VND spent.
The market last week therefore showed a noteworthy point: In the period when the buying-selling spread was maintained at a high level, the fluctuation of listed prices only reflected part of the actual effectiveness for gold holders. The more volatile the price, the more noteworthy the risk for short-term transactions.
The domestic market is affected by many different factors, not completely following world fluctuations. While world gold prices increased by nearly 300 USD/ounce last week, domestic gold increased much more modestly.
The article only reflects market developments, not investment recommendations.
