Demand for gold jewelry in Iran jumped 27% compared to last year to a four-year high of 12.9 tons, helped by the country’s economic improvement in the wake of sanctions relief followed by the 2015 nuclear deal, World Gold Council announced.
According to the latest statistics published on May 4 by WGC’s website, in the first quarter of 2017, Iran was the only bright spot in a Middle East beset by the oil price slump.
Demand for gold jewelry in Iran surged by 26.47% year-on-year (to 12.9 tons from 10.2 tons in Q1 2016) as the market continued to feel the benefit of western sanctions’ removal. Nevertheless, this growth was tempered by the impact of a 9% value-added tax.
In line with data issued by the body, which acts as the market development organization for the gold industry, the sector was also boosted by investment-driven purchases due to a lack of supply of gold coins from the Central Bank of Iran , World Gold Council said.
The Central Bank of Iran has minted Bahar Azadi gold coins since the 1979 Islamic Revolution in Iran, replacing the old-order coins issued before the revolution. Iran’s demand for gold bar and coins was 3.7 tons compared with the same period of last year, which was -0.3 due to their sale.
Jewelry demand has hovered between 45-40 tons during 2011-16, reaching a crescendo in 2013 at 63.7 tons.
The rest of Middle Eastern markets registered a double-digit jewelry demand in Q1– virtually unchanged from the previous year at 54.6 tons
Demand across the rest of the region remained weak in the face of a mixed bag of problems such as ongoing geopolitical issues, low oil prices and weakened tourist numbers, the impact of which was exacerbated by rising gold prices.
Although the UAE has imposed a 5% import duty on gold, demand in that market was relatively robust as consumers rushed to buy before the full effect of the tax seeped through to end user prices.
Due to the runup to Turkey’s referendum of constitutional changes on April 16, the country was pushed into a fragile economic situation, the price of gold in lira rose more than in any other currency in the first three months of 2017. Therefore, demand in Turkey sank to a four-year low of 7.7 tons.
In April, Reuters reported that the Turkish central bank is to be given its first option to buy locally mined gold.
Based on the WGC report, global gold supply contracted sharply during the three-month period. It declined 12% to reach 1,032 tons. Three factors have been involved in the figure, namely de-hedging, recycling and mine production.
According to data, the last one has been almost unchanged at 767.8 tons.
As for the other two factors, things were different. Gold producers reduced their overall net hedge positions by 15 tons in Q1. This compares with a positive net hedging of 47.5 tons in Q1 2016. Recycling contributed 283 tons during the period, a drop of 21% from the same period of last year.
Gold hedging is the process by which mining companies forward-sell future mine production at a contractually-specified gold price. In 2016 gold producers were more inclined to engage in hedging due to the gold’s bear market.
The other important point is the global investment in gold ingots and coin, which has been up 9% YOY from 264.9 tons to 289.8 tons .This is while central banks lowered their gold buying pace. They purchased only 76.3 tons, which shows a 27% decline compared with the same period of last year.
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