Auction to Burst Iran's Gold Coin Bubble

 Bank Melli Iran, through its affiliate Bank Kargoshaee, has launched a three-day auction to deflate the gold coin bubble in Tehran's market.

According to domestic gold market analysts, there is a 2-million-rial ($48.5) bubble in the price of gold coin compared to global prices.

The unprecedented bubble had prompted experts, including Mohammad Keshti-Aray, the head of Tehran’s Gold and Jewelry Union, to call on regulating bodies to act swiftly and contain it.

As the rumors of gold coin auction swirled in the market on Thursday, prices of all kinds of gold coin started to decline after a month-long rally had pushed the value of the benchmark gold coin to the highest level in nearly six years in Tehran’s market.   

According to the union's statistics, as soon as the news of gold coin auction circulated, Emami gold coin lost 275,000 rials of its value and changed hands for 13.90 million rials ($339) on Thursday.

As the auction was officially announced on Saturday, Emami gold coin registered another drop of 100,000 rials and sold for 13.80 million rials ($336.5).

However, the price of the other benchmark gold coin, Bahar Azadi has remained steady in the past few days at 13.52 million rials ($329.7) but probably after the bubble bursts in the market, Bahar Azadi gold coin will also experience a notable drop in value.

This is while on Saturday, Half and Quarter Bahar Azadi gold coins also marked drops of 200,000 rials and 70,000 rials compared to Thursday’s close to change hands for 6.99 million rials ($170.7) and 3.94 million rials ($96), respectively.

According to Kargoshaee Bank’s CEO Masoud Soleymani, in the first round of the auction on Saturday, Bahar Azadi and Half Bahar Azadi gold coins will be sold in the market while the Quarter Bahar Azadi will be added to the basket during the next days of the auction on Monday and Wednesday.

“The coins will be presented in packs of 20 while they were earlier offered only in packs of 100. The move was aimed at supporting low-income groups of people,” Soleymani was also quoted as saying by IBENA.   

The coins were predicted to be auctioned below the market price, with Emami being sold at 12.88 million rial ($314.1) and Half Azadi at 6.45 million rials ($157.3).

However, there are reports that coin prices in auction even went higher than the prices in open market. The first pack of auctioned gold coins, which contained 20 Bahar Azadi coins, was sold for 257million rials ($6,268). After adding 9% to the price as value added tax, the price of each Bahar Azadi gold coin sold in the auction stood at 1.41 million rials ($343.9), which is almost 300,000 rials higher than the market price.

Despite the fact that next packs were sold at a lower price of 255 million rials ($6,219), the price of each gold coin still stood higher than the market price, which discouraged potential buyers.

The gold coin’s freefall is happening despite the uptrend in the domestic value of US dollar and global price of gold.

The Central Bank of Iran was supposed to determine prices on Saturday morning so the auction could start at 11 a.m. in Kargoshaee Bank, but since it failed to fix the rates on time, the auction was postponed till 2 p.m.

A total of 2,200 coins, including 1,360 Emami and 840 Half Azadi coins, were sold at the end of the first auction on Saturday.

Pundits’ View

Gold market pundits believe that the sudden leap in gold coins’ prices and their unprecedented bubble in Iran mainly stem from unreal and speculative demand in the market, but lack of supply was what amplified the rally.

This is while according to the deputy head of Iran Chamber of Commerce, Industries, Mines and Agriculture, CBI’s interference in gold market is not in line with the goal of reforming the economy since it will affect other markets and disturb their activities.

Hossein Selahvarzi added that Iran does not have good experiences from the time when CBI interfered with the gold market. For instance, CBI’s measures during the tenure of previous president, Mahmoud Ahmadinejad, to inject gold coins in the market to control its rally only turned out to have inflationary effects, IRNA reported.

Selahvarzi noted that since the price of gold is increasing in global markets, selling it at low rates is really auctioning the country’s resources.