In America there still exist this mindset that Iran is some lowly little,
“backwoods” nation. Nothing could be further from the truth. Iran’s economy
is ranked 18th in the world according to the IMF. Not to shabby and
certainly not an economy to be ignored. Iran is one of very few nations in
the world that does NOT have a central bank. Their currency is owned by the
people and is not sold to the people with interest attached. Iran also likes
gold and has plenty of oil.
This is now the second article, in as many weeks, that we have published
covering Iran’s gold. Iran is now acquiring gold, with both hands, in front
of the latest rounds of economic sanctions coming from the U.S..
Iran’s gold bar and coin sales tripled to 15.2 tons in the second quarter
of 2018, the highest in four years, the World Gold Council announced.
It shot up to 15.2 tons–a 200% increase YOY–to reach its highest quarterly
level since Q1 2014. Coin demand was healthy, as the Central Bank of Iran
increased the amount of gold coins offered in the market. Gold coins have
performed well in recent quarters as, unlike gold jewelry, they do not
attract 9% VAT.
The country accounted for about three-quarters of Middle East demand for
gold bars and coins in the quarter, up from less than half of the region’s
usage in 2017 and just 15% in 2016, according to the data. Iran’s currency,
the rial, slumped over the three months, prompting the rush.
According to Bloomberg, Iran’s demand for gold bars and coins may remain
strong for the rest of the year and even increase as the US reimposes
sanctions.
Many Iranians are worried about the economic situation, as US sanctions on
Iran’s precious metals trade are to take effect on Aug. 6.
“Demand will stay strong for the rest of the year, around this level or
higher,” said Cagdas Kucukemiroglu, an analyst at research firm Metals Focus.
“Coins that were pre-sold by the central bank will continue to be delivered
to the market,” though jewelry sales will remain subdued, he said.
Concerns Over Currency Depreciation
Iranian demand surpasses that of Saudi Arabia and the UAE. Source
It seems they are preparing for a storm that is on the horizon. By
acquiring more gold Iran will be able to continue conducting business with
two of her largest and strongest allies – China and Russia. Economic
sanctions only hurt the U.S. and have officially lost any and all impact they
may have once held.
While demand for the yellow metal is on fire in Iran it is stagnant around
the world. We recently confirmed the retail market, in the U.S., is
not stagnant it is on life support.
“Demand for physical gold is very high, as the currency has been
weakening,” said Masoud Gholampour, an analyst at Novin Investment Bank, in
Tehran. “People want to invest in something that’s safe if they think that a
crisis may be on the way.”
Since withdrawing from the Iran nuclear accord in May, Trump has ramped up
public pressure on the Persian Gulf nation.
“Clearly, with a lot of the aggressive rhetoric between the US and Iran, a
lot of investors in Iran are looking to protect their wealth through gold,”
said Alistair Hewitt, the World Gold Council’s head of market intelligence.
The global gold bar and coin market remained subdued in Q2 2018. Demand
was flat YOY at 247.6 tons.
Price dips often tease out an investor response, but for many markets, the
5.5% fall in the gold price over the quarter failed to translate into buying
opportunities because of local currency weakness. Investor concerns over
currency depreciation were, however, a driver of demand in some markets, most
notably China and Iran. Source
If acquisition cost for gold remain low I would say that Iran will be
joined by a great many other nations in reaching multiyear highs in demand.
In our analysis of the American Gold Eagles we saw a massive uptick in July
2018 month over month, but we saw a massive decrease in the year over year
category. What seems to be happening is gold beginning to attract some much
needed attention. I’m stating right now the year is going to surprise a great
many people and finish strong and push back into positive territory for the
year.
