Iranians Hoard Gold Ahead of U.S. Sanctions

Gold prices in the country soar as precious metal becomes protection against a weakening currency and the impact of sanctions

By Asa Fitch in Dubai and Aresu Eqbali in Tehran 

Iranians are hoarding gold as a safeguard against a collapsing local currency and soaring cost of living as the U.S. is poised to impose economic sanctions on Iran, pushing the metal’s price to record highs in Tehran.

On Monday at midnight U.S. Eastern time, the Trump administration is set to bring back a first wave of restrictions that had been waived under the Iran nuclear deal, an Obama-era agreement that gave Iran sanctions relief in exchange for curbs on its nuclear program.

President Trump exited that multilateral deal in May, saying it didn’t address Iran’s military posture in Syria, Lebanon and other Middle Eastern countries. The new sanctions limit dealings in Iran’s currency and with its automotive industry. They also threaten U.S. penalties for banks that finance the precious-metals trade with Iran and against anyone who sells precious metals to the Iranian government.

Worried about a shaky economy and enticed by government sales of gold coins, Iranians have converted savings into gold recently even as prices skyrocketed. Demand for gold bars and coins in Iran tripled year-over-year in the second quarter to about 15 metric tons, according to a World Gold Council report on Thursday. Iran’s central bank has minted hundreds of thousands of new coins—more than 60 tons of gold in total—to feed the demand. The move has had little impact beyond stoking more demand for the metal.

“People are changing their money into gold because it’s a reliable investment commodity,” said Mohammad Kashtiaray, the head of gold and jewelry committee under Iran’s Chamber of Guilds, a coalition of merchants.

Inflation and unemployment are both in double digits this year, and the economy is expected to shrink next year as sanctions bite. More alarmingly, Iran’s currency, the rial, has seen a record weakening this year—currently trading at roughly 101,000 per U.S. dollar compared with about 43,000 in January, according to Bonbast, a site that tracks unofficial exchange rates.

A second round of U.S. sanctions in November is expected to target Iran’s oil and shipping industries. American pressure on Asian customers has already led to a reduction of crude sales that account for a large chunk of Iran’s economy. 
The economic malaise has stirred popular discontent with Iran’s leadership. In December, the widest demonstrations in almost a decade broke out. More angry crowds have taken to the streets in the past week in the largest spate of unrest since January, sometimes clashing with security forces and chanting for the downfall of the regime as sanctions go back in place. One person was killed and 20 people were arrested Friday during protests in Karaj west of Tehran, according to the semiofficial Fars news agency. 

For Iranians, giving gold coins as gifts during holidays and New Year’s celebrations and buying gold jewelry—the more elaborate the better—during weddings is part of tradition. But the recent surge in prices far outruns inherent demand.

People have lined up outside banks this year to place advance orders for Emami coins in central bank auctions, where they are often priced at lower-than-market rates.

The price of an Emami, a central bank-minted gold coin weighing 8.13 grams, stood at around 36 million rials on Sunday, more than double its price in January. It had hit a record of more than 45 million rials a week ago. The demand for gold in Iran is also bucking a shaky picture globally; spot gold prices have fallen by about 6% this year to about $1,200 an ounce.

Tehran’s gold sellers, however, haven’t benefited much from the demand, which has been primarily for coins, shop owners said.

Amir Dehghan, a gold-shop owner in Tehran, said he wasn’t seeing many buyers, and he was reluctant to sell, because high prices would make restocking that much more expensive.

“If I sell a good amount today—40 grams—I’m worried about how I’ll replace it because of prices, not because of a shortage,” he said.

Demand for jewelry in Iran fell 36% year-over-year in the second quarter to the lowest level the World Gold Council has ever measured, partly due to a 9% value-added tax but also because of the priority Iranians were placing on investment over adornment.

With prices near record highs, many people said they were buying only because they had to. A computer engineer who identified himself as Mr. Bani, said he was shopping for a set of bridal jewelry. 

“It’s what you have to do,” he said. “I’m buying now because I should, but otherwise it’s not a good time.” 
A paucity of other safe investment options in a relatively isolated economy with an underdeveloped financial system gave gold a further boost when fear reigned, according to Alistair Hewitt, the World Gold Council’s head of market intelligence.

“The access to dollars isn’t there to the same extent [as elsewhere],” Mr. Hewitt said. “So gold is one of the only alternatives they can get exposure to.”

In recent months, Iranian authorities have tried to put the brakes on gold prices, part of a package of moves they hoped would also stem the weakness of the currency—so far with little success. This week, the central bank is expected to unveil new measures to right the economy, although it isn’t clear what they are.

Late last year, the central bank restarted auctions of Emami coins in an effort to keep prices steady and to divert Iranians’ cash away from foreign-currency investments that were weakening the rial.

Demand for gold has been so resilient that prices are outpacing even the rial’s historic depreciation against the dollar. After factoring out fluctuations in the rial, the price of an Emami coin went from $346 in January to $379 today, a 9.5% rise.

In recent months, authorities are turning their focus to prosecuting people who allegedly are hoarding coins in an effort to keep prices high. In July, police arrested a 58-year-old man, dubbed the “King of Coin” in local media, who allegedly obtained about two tons of central bank coins with the help of numerous accomplices, intending to make money by selling the coins slowly as prices went up.

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