The Azadi gold coin led a general advance against the rial in Iran's foreign exchange on Wednesday, as all major currencies rose against the rial and stocks fell in Tehran Stock Exchange.
Rial's selloff was due to the strengthening of foreign currencies and the continuity of the bearish trend in Tehran's stock markets.
Gold coins were the main winners of Wednesday's trading, with the benchmark Azadi jumping 1.2% to 8,870,000 rials by 1208 GMT, its highest level since July 16.
The Emami, Azadi's sister coin, was also in demand. It changed hands at 8,880,000 rials by 1208 GMT, up 0.79% from Tuesday's close.
The higher demand in Tehran came as gold gained for a fifth session in a row on Wednesday to trade near a three-week high, benefiting from safe-haven demand as risky assets slid after China's devaluation of the yuan that stoked fears of a currency war.
The euro, however, was the biggest winner among the majors, rising to a one-month high versus the rial. The European unit of value surged 1.63% to 37,350 rials, on overnight gains against the dollar in Asia, helped by the unwinding of euro-funded carry trades in the yuan. The single currency hit a one-month high of $1.11385, up 0.8% on the day.
Rush to Safe Assets
Gold has seen renewed demand in the wake of policy changes in China.
China's surprise 2% devaluation of yuan on Tuesday, seen as a move to bolster a flagging economy, was condemned by US lawmakers as a grab for export advantage, Reuters reported.
The move hit global equities, prompting some investors to seek safe assets such as gold, which has now recovered more than 3% from a 5-1/2-year low of $1,077 during a late July rout.
Asian stocks and emerging market currencies tumbled on Wednesday after Beijing allowed the yuan to fall sharply for a second day.
Spot gold was up 0.5% at $1,114.40 an ounce by 0623 GMT, after peaking at $1,119 on Tuesday, its highest level since July 20.
Gold's international gains sent bullion coins soaring in Tehran. Apart from Azadi and the Emami, which are the benchmarks for trading of the precious metal in Iran, smaller denomination coins also rose markedly, as household investors also showed renewed demand for the store of value.
The Half-Azadi gained 0.85% to a two-week high of 4,760,000 rials by 1208 GMT. But the Quarter-Azadi rose only 0.38% to 2,650,000 rials as retail demand remained subdued.
"The only reason gold may benefit will be purely from a safe-haven perspective," OCBC Bank analyst Barnabas Gan told Reuters.
But if China's action indeed spurs a currency war, every currency would depreciate and the dollar's strength continues, said Gan, which would eventually weaken gold.
Gan also said the weaker yuan would make it more expensive for China, the world's top consumer, to import gold, potentially extending weak Chinese demand that has been the case since 2014.
US gold for December delivery gained 0.5% to $1,113.10 an ounce.
China's currency devaluation is unlikely to distract the US Federal Reserve from a domestic economy that appears increasingly ready for higher interest rates, according to economists and US Federal Reserve watchers.
That could limit gold's upside potential. A looming hike in US interest rates had weighed on non-interest yielding bullion.
"We are still looking for a rate hike this year despite all that's happened," said Gan.
Greenback Falls Behind
The US dollar's gains against the rial, however, were curbed by its weakening in international trading. The greenback rose 0.45% to a four-week high of 33,510 rials by 1208 GMT on Wednesday.
The dollar fell 0.6 percent against a basket of currencies on Wednesday, coming under pressure as Treasury yields dropped on doubts over whether the Fed will raise interest rates in the wake of China's devaluation of the yuan.
The yuan extended its losses, dragging the growth-linked Australian and New Zealand dollars to six-year lows with it, while another set of disappointing Chinese data bolstered the yen.
The dollar index fell to 96.691, while the greenback shed 0.5% to trade at 124.42 yen.
Grim Day for Mellat
Tehran Stock Exchange's main index, TEDPIX, fell for the fourth straight day in a row, closing nearly 200 points or 0.30% lower at 65,703.30 points, mainly dragged down by banking heavy weights Mellat and Tejarat, and IRISL shipping company.
Bank Mellat's shares dropped for the second day since reopening for trading on Monday, due to making losses in its lending business and poor earnings. The commercial bank's symbol was closed for an extraordinary general meeting to appoint a new board. The bank's shares have lost nearly 14% since they were closed.
Mellat's case is just an example. Most large lenders have lost over 10% since the signing of the nuclear agreement between Iran and the six powers on July 14. Analysts say this is in part due to their bad state and also due to the bearish trend in the market, which has hit almost every industry.
However, the smaller Iran Fara Bourse which lists smaller companies extended its gains for a second day. Its main index, the IFX, gained 8.84 points and closed 1.14% higher at 782.99 points for the day. IFX's gains came mainly from petrochemical producers, which dominate the over-the-counter market.
