EghtesadOnline: As stability in the foreign exchange market takes hold, gold prices are also following suit. The benchmark gold coin market dropped again on Tuesday and fetched around 33 million rial ($335), down from 34 million rials a day earlier.
Tuesday's sharp fall put the coin, which turned into a popular safe haven asset during the unprecedented currency crisis in the past months, at its lowest level for six months.
Mohammad Kashati-Aray, president of the Specialized Gold and Jewelry Commission at the Iran Chamber of Guilds told the Financial Tribune that the main reason for the decline in the gold market is the drop in foreign exchange rates.
The US dollar was traded for around 101,000 rials on Tuesday but has occasionally dropped below the support level of 100,000 rials in the past days, according to Financial Tribune.
The rial’s rebound, from record lows around 190,000 seen in late September, is good news for the government struggling to prevent US sanctions on oil, banking and other industries from pushing the economy into recession.
Deputy Governor of the Central Bank of Iran Akbar Komijani said Monday that CBI has succeeded in "taming the dollar" but noted that further reforms in the unstable forex market are crucial to help prevent future crises.
"It’s interesting that the drop in gold coin prices come at a time when global gold prices gained $8 on the same day and the drop in forex rates in Iran offset the international gain in the yellow metal," Kashati-Aray said in a phone interview.
Notwithstanding the drop, gold coin prices are still in a bubble when compared to the international price of gold. Kashati-Aray is of the opinion that the coin price is almost 4.2 million rials higher than what it should be.
"Positive statements from officials about stability in the forex market shows that they have a special target that is indeed encouraging people to sell their precious metal," he added.
If prices remain at current levels and persist, “I think that could well be a sign that gold may lose more of its value in the long term."
According to World Gold Council data, Iranian demand for gold coins and bars for the third quarter of 2018 has been of the ascending order. Demand hit 21.1tons - the highest since Q2 2013 – and accounted for three-quarters of the Middle East market.
As per a decision in Tehran by a body comprised of the three heads of the government in September, importing foreign currency and gold bars is allowed for all those interested without restriction.
Kashati-Aray said the drop in forex rates had a bigger downward impact on gold prices than the decision to allow the import of gold bars without limit.