EghtesadOnline: Despite an uptick in gold prices in international markets on Monday, the yellow metal stayed almost unchanged in Tehran due largely to falling currency rates.
The benchmark Bahar Azadi coin fetched 38.4 million rials ($350) on Monday, according to the Tehran Gold and Jewelry Union website.
Global gold prices rose Monday as the dollar fell on expectations that the US Federal Reserve will not raise rates this year and as Asian stocks tumbled after lackluster China data pointed to a slowdown in the world’s second-largest economy, Reuters reported.
"The reason for gold holding steady [in Tehran] was due to the exchange rates falling on Monday after a move by the Central Bank of Iran [to intervene] in the market," Mohammad Keshti-Aray, president of the gold and jewelry commission of the Iran Chamber of Guilds told the Financial Tribune.
Gold coin prices had risen in the past two days after forex rates made a surge as the two usually move in tandem with each other. Foreign exchange rates surged in the local market on Saturday, prompting the CBI to issue a statement to reassure the public that everything “is under control”.
The USD rose above the resistance level of 110,000 rials on the first trading day of the week and then on Sunday edged close to 120,000 rials. On Monday it dropped below 110,000 rials in the open market.
"Despite the rise of $6 per ounce in global gold prices, it did not have any effect on the domestic market," Keshti-Aray said.
The former head of the National Gold and Jewelry Union said although the price of gold is still a bubble, that now is 3.7 million rials, down from Sunday's 4.1 million rials.
The oft-mentioned bubble is calculated by multiplying the international price of gold at the exchange rate and subtracting that amount from the price in domestic markets. As Keshti-Aray noted, the bubble is there because demand for the precious coin still outweighs supply, which is higher than demand for pure gold among Iranians.
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.
Asked about the future of gold demand, Keshti-Aray said demand – which peaked at the height of the currency crisis in summer following the flight of money from banks toward gold, "has now saturated."
In early 2018 the CBI started pre-selling gold coins at preferential prices to calm the market. The move that culminated in the CBI auctioning 60 tons of its gold reserves, drew much criticism in that it failed to pop the so-called bubble' in prices.
Keshti-Aray says the pre-sales were initially effective in taming the market and if coins with one-year maturity, which are to be delivered in a week, enter the market, it will have a further soothing effect.
Ad for the recent decision by the CBI to scrap overnight interest rates on short-term bank deposits, Keshti-Aray played down fears that that would heat the gold market, saying that so far it has not had much effect.
In his prediction for the gold market in 2019, Keshti-Aray said a couple of factors are likely to drive prices higher.
One is that the gold excavations are expected to fall by 0.5% which will hurt the supply side. The other is that some central banks are converting their hard currency reserves to gold.
The US Federal Reserve decision not to raise interest rates for now is also likely to whet interest in gold.
Investors were buoyed last week by assurances from Jerome Powell, the chairman of the Federal Reserve, that the central bank would take a “flexible” approach both to interest-rate rises and winding down the assets it accrued through quantitative easing, a softening of the remarks he made after the Fed’s recent meeting.