CBI to Resume Gold Auctions

The Central Bank of Iran has sufficient reserves of gold bars and coins, and will resume gold coin auctions until the market is fully saturated and prices become stable, the director of CBI's Office for Banknote Issuance announced.

“CBI is in charge of minting various kinds of gold coins in the country. Hence it is also responsible for meeting the market demand and controlling the prices,” Masoud Rahimi was also quoted as saying by IRNA.

The auctions were started in November through Bank Melli Iran’s affiliate, Bank Kargoshaee, to deflate the Iranian market bubble that saw benchmark gold coins rise to a six-year high.

However, the launch of 16 auctions has not failed to deflate the coin's bubble, as prices have continued to surge.

According to Tehran Gold and Jewelry Union’s website, the price of benchmark Emami gold coin on Tuesday approached 15 million rials ($3,530), registering an increase of 60,000 rials or 0.7% compared to the previous day.

This is the highest value of Emami gold coin since five years ago in Tehran’s open market.

The director of CBI's Office for Banknote Issuance added that keeping the national currency strong is the regulator's main agenda.

“Any unreasonable surge in gold coin rates, which is not in line with the [real] price of gold can have inflationary effects on the foreign exchange market and that’s why CBI interferes in the gold market to stabilize the rates,” he said.

Rahimi noted that the main reason for this surge is the unusually high demand since a great deal of investment flowed into the gold coin market instead of the forex market, as the public perception is that the price of gold coin will continue to rise in the coming months.

“Many ordinary people have also invested in the gold market to retain the value of their money, which has further heated up the market,” he added.

Minimum Interference

The official said the CBI governor has called for managing the bank’s resources through prudent policymaking and minimizing its intervention in the market.

“In line with those policies and as the market experienced relatively calm years and prices were steady, we did not enter the market during that period but whenever we realize that the market is fluctuating and people are suffering losses, CBI will interfere in the market to control the situation,” he said.

He noted that before the auctions began about a month ago, Bahar Azadi gold coin's price had reached 14.5 million rials ($3,410).

During the first days of the auction, market speculators were trying to prevent the rates from falling by increasing their base prices in the auction, but as the auctions continued, Bahar Azadi’s value started to decline and settled around 14 million rials ($3,295).

But auctions have fallen short of their projected impact, as recent protests over unsound economic policies that led to the rise of basic goods' prices  dampened the market mood, causing more fluctuations in the currency and gold coin markets that are regarded as safe havens by many Iranians.

According to the latest report from Tehran’s gold market, Bahar Azadi gold coin changed hands for 14.72 million rials ($3,460) on Tuesday. The rial also weakened further and was quoted at 43,420 to the dollar.  

Rahimi insists that experience has shown that holding auctions is the best way of meeting the market’s demand and controlling prices.

“Base prices in auctions are based on the real value of the gold and are always lower than the free market rates. In fact, the rates of final sales were also usually lower than the market rates,” he said, adding that participation in Bank Kargoshaee’s auctions is open for all people.

The official explained that in order to enable ordinary people, who do not possess huge resources, to participate in the auctions, the bank also offers smaller packs containing 20 gold coins.

Rahimi stressed that the continuation of auctions depends on statistics, market assessment and the trend of rates.

“If people want to invest in the gold market, they should brace for fluctuations since gold is a global commodity and its domestic prices are directly affected by global prices,” he concluded.

A total of 110,000 gold coins have been sold in 16 auctions, half of which were Bahar Azadi and the rest comprised Half Azadi gold coins.