As the US dollar continues its weak trend, investors are looking more toward gold as a safe haven. The Iranian rial registered gains against the American currency from Thursday when it gained 30 rials against the dollar. The greenback was buying 34,700 rials. The rial surged further later in the week, marking the biggest gains on Saturday since March 20 with the US currency trailing at 34,600.
Even on Sunday the greenback was in bearish territory defying expectations that as the parliamentary runoff election ended on Friday, heightened demand for hard currency would bring more fluctuation to the market. The American currency was traded between 34,550-34,600 rials in late Sunday trade.
"The trend has more to do with strong supply and weak demand which had kept the market stable," says one bureau de change operator in central Tehran. But another dealer told the Financial Tribune that he believes there is no "bearish market" for the US dollar for now and the currency is swinging between 34,800-34,600 rials - something that has come to be known as "greenback incarceration."
Meanwhile, the euro was traded between 39,520-39,600 rials, almost unchanged from the previous day's close.
The dollar fell to its lowest point in nearly a year against its peers Friday in global markets as investors absorb actions this week from the Federal Reserve and Bank of Japan.
The Federal Reserve kept its rates unchanged in its monthly policymaking meeting this week but the Fed's head, Janet Yellen signaled worries about global growth and kept open the possibility of an interest-rate rise in June.
Back to the domestic markets, some traders and analysts believe the US dollar is in for a rally as the demand for the currency is expected to increase as more companies launch their market activities in the coming weeks. Others, however, believe that fluctuations in global markets will run their course and no volatility is on the horizon.
"As the government's unfrozen assets start coming home, chances are that a weaker rial will be a boon to state coffers, the economy is still grappling with the credit crunch and banks are struggling to finance businesses," said Morteza Ramezanpour, head of international affairs at Amin Investment Bank, the biggest investment banking firm in Iran with over $1.2 billion in assets under management.
For Ramezanpor, however, all is not doom and gloom as he notes that "some foreign investors are bringing cash to the equity market, but the process is not fast enough. However, they will embark on purchasing in large volumes."
Gold Rally
The dollar's weakness has stoked demand for the yellow metal. Gold prices rose to their highest level in 15 months on Friday in global markets, boosted by a weaker US dollar and heightened demand for safe-haven assets.
In a surprise move on Thursday, the Bank of Japan left monetary policy unchanged, which led to a surge in the Japanese yen against the dollar. Fluctuations in Japanese yen and weak economic data in the US has added to the gloss of gold. Prices of this precious metal tend to rise when investors anticipate low interest rates, because the metal competes with yield-bearing assets such as treasury bonds.
On Saturday, Azadi gold coin, gained 17,000 rials and fetched 10,000,500 rials in Tehran market – its highest price since September 12. On Sunday the benchmark bullion was slightly down and changed hands at 10,000,490 rials. The half Azadi coin sold for 5.43 million rials.
Analysts hope that with more supply in the market and stronger gold prices, the vital currency markets should experience more stability as the hot summer arrives.
