The Azadi bullion coin steadied below the 10 million rial per coin mark on Thursday after a four-week rally amid fears of economic hardships due to plummeting oil prices.
“The gold market will be volatile next week since changes in the world economy speed up as we approach the end of the [Gregorian] year,” says the head of Tehran’s Gold and Jewelers Union, Mohammad Keshti-Ara.
The week was a bullish one for currencies and gold as international news and domestic concerns fuelled more buying. Meanwhile stocks fell as the bearish trend in Tehran’s equities continued.
Bullion Falters on FOMC Notes
Bullion traded in a $40 range in the past week, with a $1,224.25 an ounce high on Monday and a $1,183.89 an ounce low on Wednesday, according to Bloomberg’s generic pricing index.
Gold spot had lost $25.72 or 2.1 percent by 9:03 am in London on Friday, since Monday’s $1,222.68 an ounce open. Bullion for immediate delivery traded at $1,196.96 an ounce on Friday.
The precious metal’s weekly fall was largely on account of Monday’s 2.5 percent drop - its deepest this year - amid worries over raising US interest rates in 2015.
The US’ Federal Reserve, after wrapping up a two-day meeting on Wednesday, signaled it was on track to increase rates next year but said it was taking a patient stance, allowing gold to erase some of its losses.
The Fed’s no-rush stance to withdraw stimulus from the US economy sent Asian shares to their best day in 15 months on Friday, taking their cue from a rally on Wall Street, Reuters reported.
Gold saw a mild boost in the aftermath of a Federal Open Market Committee (FOMC) meeting that was deemed a bit dovish. Also, there was still a safe-haven demand for gold amid this week’s steep slide in the Russian ruble, Kitco wrote in a newsletter.
Azadi Gains on Safe Haven Demand
Conversely, the price of Azadi gold coin – the benchmark for gold trade in Tehran – surged in the week, as safe haven demand and the depreciation of the rial versus the dollar weighed in on the coin’s price.
Azadi broke above the 10 million rial mark on Monday and hit an eight month high of 10,100,000 rials. The bullion closed at 9,985,000 rials per coin in Tehran on Thursday, slightly higher than the weeks open.
The benchmark gold coin is poised to cap its largest monthly gain this year, surging 17.4 percent during the period.
Azadi’s resilience and gains are in part due to the strengthening greenback, which makes dollar denominated gold expensive for rial earners.
The US dollar index, which tracks the greenback against a basket of six major currencies, was trading above 89 and within sight of the Dec. 8 high of 89.550, which was a five-year peak.
Rial Depreciates on Worries
Also, Azadi’s gain was part of the general trend of the rial’s depreciation in Tehran’s market, after months of stability over declining oil prices and uncertainty whether the country will clinch a nuclear deal.
The dollar, which had hovered around 32,000 rials in Tehran’s market since April, has gained eight percent since Nov. 24, when world powers and Iran extended nuclear talks by seven months after failing to reach a breakthrough.
The dollar which is also poised for its best monthly gain this year, traded near a 1-1/2 year high of 35,030 rials, up 17.7 percent year to date.
The euro and the sterling have also gained over seven percent versus the rial since Nov. 24. Both currencies are at six-month highs against the rial. The euro closed at 43,780 rials, while sterling closed at 54,800 rials on Thursday.
The Emirati Dirham has been one of the major winners against the rial. The dirham is up 18.5 percent versus the rial for the past 12-months. The UAE’s currency has soared just shy of eight percent since Nov, 24. The dirham was at 9,600 rials on Thursday’s close.
Stocks Keep Tumbling
What has been fuel for currencies has worked as poison for stocks. The Tehran Stock Exchange’s Index has lost 20 percent in 2014, set for the first yearly decline since 2008, as petrochemical companies and lenders plunged, based on TSE data.
The TEDPIX, Tehran Stock Exchange’s main index, broke below the 70,000 mark this week and closed at 69,494.80, down 2.16 percent for the week, bourse data show.
Analysts cite the ongoing uncertainty over the fate of Iran’s sanctions, the widening budget deficit which fuels speculation that the government will have to monetize the deficit and the plunge in crude oil prices as the main reasons for the downtrend that is currently choking stock performance.
Oil at Record Low
Oil prices hovered near a 5-1/2 year low on concerns of a global glut, dampening inflation expectations. However, lower energy costs also increase the cash consumers have to spend heading into year-end holidays.
On the week, Brent lost more than $2, or about 4 percent. US crude tumbled over $3, or 5 percent. Both markets have lost about 46 percent of their value since their June highs, when Brent stood at above $115 and US crude at around $107.
Saudi Arabia’s powerful oil minister said on Thursday OPEC could not cut output without the support of other big producers and attempts to get them on board had not worked, Reuters reported.
Ali al-Naimi said it was impossible for OPEC to cut alone to reverse the price slump, which he called temporary, when others were pumping more. Doing so could lead to a loss of market share, with no guarantee of supporting prices, he said.
The Week Ahead
A surge in gold prices to above $1,230 an ounce last week from around $1,140 a week earlier has spurred caution among investors, said Yuichi Ikemizu, branch manager at Standard Bank in Tokyo.
“People are not overly bearish anymore. They have learned their lesson when gold rallied sharply so they’re not bold enough to go short around these levels,” he said.
“Gold prices are currently capped by a stronger dollar and ongoing weak oil prices. Equity market gains further reduce the appeal of alternative assets like gold. Despite this, gold keeps challenging the $1,200/oz level,” HSBC analysts said in a note.
