How to invest in December: Fluctuating gold prices, stock investment needs a tighter filter

Recently, domestic and international gold prices have been continuously increasing. Domestic gold has far exceeded the 60 million VND/tael mark and is currently "higher" than the world price by nearly 12 million VND - a record high difference not only in the country but also nowhere else in the world.

Meanwhile, the stock market has been continuously thriving with the VN-Index hitting a record of 1,500 points and strong cash flow. The question that many people are interested in right now is what to do in the last month of 2021? Dr. Nguyen Hoang Nam, Head of the Faculty of Finance and Banking, Dai Nam University, shared some investment perspectives.

PV: According to you, why has the gold price fluctuated so strongly and reached a record high recently?

Dr. Nguyen Hoang Nam: The price of Vietnamese gold bars is formed based on the mechanism of accepting world prices. Thus, it is affected by many factors such as: world gold price, exchange rate, interest rate, inflation, market supply and demand and investor psychology.

Exchange rates and interest rates have always been well controlled by the State Bank of Vietnam (SBV) in recent times, so they have not had much impact on domestic gold prices. Meanwhile, at the end of the year like this, the two factors of inflation and investor psychology have many fluctuations, pushing up the demand for gold in the short term.

Regarding the supply and demand of the gold market, individuals and businesses buying gold to make jewelry to serve the increasing demand at the end of the year, while on the selling side, due to the disruption of the supply chain, gold imported by air is not much. Currently, the supply of gold comes from the reserves and hoarding of individuals and businesses in the past, the market is just going around like that.

Recently, investors' speculative psychology has appeared due to fear of inflation, and I think this is the most important reason pushing up domestic gold prices.

If the gold price continues to increase, it will cause many impacts on the economy. The gold market is very sensitive, so when it is undervalued or overvalued, it can lead to market distortion effects. If we approach the economy from the perspective of stabilizing macroeconomic variables, we fear this effect the most. To solve this problem, the State Bank is controlling the market through import quotas (by year, by trip).

PV: Inflation is mentioned a lot, what is your personal forecast and how will inflation affect the financial market in the coming time?

Dr. Nguyen Hoang Nam: Inflation in the coming time will continue to increase due to three main reasons as follows:

Firstly, the data just released by the General Statistics Office shows that only 2/11 groups of goods have decreased in price, which are food services (due to the epidemic) and education (due to policy), the remaining 9 groups have increased, proving that core inflation has increased, and an increase in core inflation affects the living standards of all residents to varying degrees.

Dr. Nguyen Hoang Nam - Head of Finance and Banking Department, Dai Nam University.

Second, the eternal habit of Vietnamese people is to increase consumption at the end of the year and during the Lunar New Year. In addition, with the move to raise both the public debt ceiling and budget deficit, it can be said that demand-pull inflation will come in the last months of the lunar year.

Third, in the world, the USD has just suffered an inflation rate of 6.2% in the past month, the highest in the past 30 years; the EURO has suffered a record inflation rate after 2 decades - 4.9%. Therefore, with a small economic scale and very large openness, it is predicted that Vietnam will have to bear more imported inflation.

In short, from now until Lunar New Year, the risk that Vietnam will have to bear all three types of inflation mentioned above is real, from demand-pull inflation, cost-push inflation to imported inflation.

The story here is that high inflation, even if it is only expected inflation, will have a rapid and strong impact on the market. Individual investors will have the mentality of hiding their assets in the last months of this year. The market reaction has been very clear, with less money flowing into banks and stocks fluctuating strongly in the past few days.

PV: Inflation and gold often go hand in hand. Where do you think gold prices will go and what should investors do?

Dr. Nguyen Hoang Nam: Although the pressure of inflation in the world and in the country is quite high, I think that the domestic gold price will hardly increase sharply, unless there is a sudden change in the world gold price. The gap between the international and domestic gold prices is too large, up to 19.7%. This figure is double that of the past, proving that there is not much room for this market to grow.

Investors should be cautious with gold price fluctuations. If you want to hold gold, you need to consider it as a safe haven for your assets, not a short-term trade, but rather think about the next business cycle.

PV: The Vietnamese stock market recently hit a peak, investors are still opening new accounts and trading actively, do you have any advice for investors at this time?

Dr. Nguyen Hoang Nam: I think that in the current context, investors in the stock market should stay in the market but need to restructure their investment portfolio more closely (practical investors call it "reversing goods") in terms of stocks that provide essential raw materials and stocks that will directly benefit from the disbursement of the stimulus program to still gain certain profits.

Otherwise, investors can also invest in a reasonable segment of the real estate market. With high-risk asset classes such as weak cryptocurrencies, forex - which have made many investors swallow bitter tears many times, and are not protected by law, investors should avoid or be extremely cautious.

Huong Hoang (performed)

According to Economic Pulse