Gold Demand at Four-Year High

Iran’s gold bar and coin sales tripled to 15.2 tons in the second quarter of 2018, the highest in four years, the World Gold Council announced.

It shot up to 15.2 tons–a 200% increase YOY–to reach its highest quarterly level since Q1 2014. Coin demand was healthy, as the Central Bank of Iran increased the amount of gold coins offered in the market. Gold coins have performed well in recent quarters as, unlike gold jewelry, they do not attract 9% VAT.

The country accounted for about three-quarters of Middle East demand for gold bars and coins in the quarter, up from less than half of the region’s usage in 2017 and just 15% in 2016, according to the data. Iran’s currency, the rial, slumped over the three months, prompting the rush.

According to Bloomberg, Iran’s demand for gold bars and coins may remain strong for the rest of the year and even increase as the US reimposes sanctions.

Many Iranians are worried about the economic situation, as US sanctions on Iran’s precious metals trade are to take effect on Aug. 6.

“Demand will stay strong for the rest of the year, around this level or higher,” said Cagdas Kucukemiroglu, an analyst at research firm Metals Focus. “Coins that were pre-sold by the central bank will continue to be delivered to the market,” though jewelry sales will remain subdued, he said.

 Concerns Over Currency Depreciation

Iranian demand surpasses that of Saudi Arabia and the UAE.

The rial weakened to an all-time low this week, trading on the black market at about 112,000 per dollar on Monday, compared with 90,000 last week. The currency recovered to 105,000 on Thursday.

CBI sets its exchange rate at less than half the unofficial level, or about 44,000 rials per dollar.

“Demand for physical gold is very high, as the currency has been weakening,” said Masoud Gholampour, an analyst at Novin Investment Bank, in Tehran. “People want to invest in something that’s safe if they think that a crisis may be on the way.”

Since withdrawing from the Iran nuclear accord in May, Trump has ramped up public pressure on the Persian Gulf nation.

“Clearly, with a lot of the aggressive rhetoric between the US and Iran, a lot of investors in Iran are looking to protect their wealth through gold,” said Alistair Hewitt, the World Gold Council’s head of market intelligence.

The global gold bar and coin market remained subdued in Q2 2018. Demand was flat YOY at 247.6 tons.

Price dips often tease out an investor response, but for many markets, the 5.5% fall in the gold price over the quarter failed to translate into buying opportunities because of local currency weakness. Investor concerns over currency depreciation were, however, a driver of demand in some markets, most notably China and Iran.

China, the world’s largest gold bar and coin market, saw demand rise 11% to 69.5 tons, as gold benefited from a flight to safety amid increasingly tense trade-war rhetoric. The yuan weakened drastically against the US dollar, falling 5% over the quarter.