The Azadi bullion coin nears a six month low following the decline of gold’s spot price in the international spot market, as the strengthening US dollar drives down demand for safe havens.
The benchmark of gold coins in Tehran’s currencies and precious metal market fell to 9,385,000 rials per coin on Thursday, nearing its lows in March, as a fall in gold’s price to $1238.20 per ounce and low domestic demand drove down the bullion coin’s price.
Azadi’s drop comes despite the rise of the dollar to a two month high against the rial, which makes the dollar denominated precious metal more expensive for the holders of other currencies.
The dollar has experienced a three week rally against the rial after falling for three consecutive months, reaching 31,860 rials on Thursday.
Demand for gold coin is down as the global downtrend in the bullion’s price and high interest rates offered by commercial banks and credit institutions in Iran make the precious metal a less lucrative investment.
Pressure on Commodities
Gold melted to its lowest in eight months and silver sank to the lowest since June 2013 as anticipation of a sooner than expected rise in US interest rates boosted the greenback, eroding demand for precious metals as alternative investments. Platinum and palladium also fell.
Bullion in the spot market sunk to $1,232.33 an ounce, the lowest since Jan. 23, and traded at $1,234.78 by 14:15 GMT. The metal is down 2.5 percent this week after retreating 1.4 percent last week.
Precious metals have lost their appeal as the greenback is keeping up its momentum, being at a 14 month high against the major currencies.
The greenback is at its strongest against the yen in six years, trading at 107.29 yens, while the euro and the pound at 14 month and ten month lows against the dollar respectively. The Euro zone currency was at $1.2912 by 14:45 GMT on Friday while the sterling traded at $1.6225.
The rise of the US currency has also shoved oil prices to their two-year trough with the Brent crude at $98.08/bbl and the West Texas Intermediate at $93.11 per barrel at 14:45 London time.
The relentless speculation about the outlook for US interest rates is undermining commodity prices and unwinding leveraged trades in higher-yielding currencies.
Nuclear Negotiations
The currency market in Tehran is down on volume of trade, as investors await the result of the ongoing negotiations between Iran and the permanent members of the UN Security Council --US, Britain, France Russia and China—plus Germany, known as P5+1.
“The uncertainty is killing the market,” a trader said to Financial Tribune.
Iran which is under draconian international sanctions over its nuclear energy program is negotiating with the six world powers to lift the sanctions in exchange for limiting its nuclear activities.
The negotiating parties are set to resume their talks in mid September in order to reach a comprehensive deal over the scope of Iran’s nuclear energy program, before hitting the November deadline.
This has led to a buildup of anxiety among traders in Tehran, “if we can reach a deal and sanctions are lifted gold will drop, but if we don’t, people will start buying,” said a bureau de change owner in an interview.
Low Domestic Demand
Six month interest rates offered on deposits exceed 16 percent, and annual interest rates stand at 22 percent. The high interest rates are drawing in more and more depositors, who wish to set their deposit rates at said rates, before the government lowers interest rates.
Economy Minister Ali Tayebnia and Central Bank Governor Valiollah Seif have recently said that they will reduce interest rates as inflation is set to fall to below the government’s target.
Inflation, which was at 32.1 percent for the last fiscal year which ended March 20, 2014, has showed signs of decline, as the government’s fiscal discipline and the Central Bank of Iran’s monetary policies are taking effect in the economy.
President Hassan Rouhani announced the administrations’ revision of its inflation target to 20 percent from 25 percent announced in August.
Deposit rates offered by Iranian banks, are fixed at the beginning of the contract and cannot be revoked afterwards, thus, creating a rush towards locking in the high yields, offered by the banks before interest rates decrease.
