Trump Ire Stokes Gold Trade in Iran as Rial Hits Record Low

  • Economics

Iranians placed a lot more bets on gold in the first quarter after the local currency weakened to a record and fears grew that the U.S. would pull out of the nuclear deal, signaling a return to sanctions.

Gorging on Gold

Gold coin and bar demand in the Persian Gulf nation soared to 9.3 tons in the first quarter, a three-year high, on “investor concerns over worsening Iranian-U.S. relations and the prospect of currency controls,” the World Gold Council said Thursday in a report. U.S. President Donald Trump will decide by May 12 whether to keep America in an international agreement that restricts Iran’s nuclear activities in exchange for relief from sanctions.

The rial hit several record lows against the U.S. dollar over the past few months. In April, the government took measures to unify the rial’s rates against the dollar.

Taking Back the Gold Crown

As opposed to demand for coins and bars, Iran’s consumption of gold jewelry declined 16 percent in the first quarter from a year earlier to 10.7 tons, according to the report.

Buyers looked to bars and coins as an investment rather than jewelry after the government imposed a 9 percent value-added tax on gold jewelry last year, according to Alistair Hewitt, the council’s head of market intelligence.

The central bank also increased the supply of gold coins in the first quarter, reducing the premium “a bit,” he said. “These factors would have made coins a more compelling investment for many investors compared to jewelry.”

In the United Arab Emirates, the introduction of a 5 percent VAT contributed to a 23 percent year-on-year decline in gold jewelry demand, with the 10.5-ton total the lowest of any first quarter on record, the council said. “Consumer sentiment was further undermined by rising living costs and fears over job security,” it said. The U.A.E. cabinet said in a May 1 statement that it exempted investments in precious metals, including gold, from the VAT.

Source: Bloomberg