Gold Coin Drops in Tehran After New Forex Measures

CBI announced late Monday that each US dollar will henceforth be offered to designated groups at the unified rate of 42,000 rials and since the USD rate is one of the main factors impacting gold prices, they went into freefall on Tuesday.

The benchmark Bahar Azadi gold coin, which traded at an all-time high of nearly 20 million rials ($477) a day earlier, lost more than 11% by Tuesday's market close and was priced at around 17.8 million rials ($423), according to Tehran Gold and Jewelry Union's website. 

This is while the head of TGJU said on the same day that the freefall happened in the complete absence of deals on the scale of more than five coins.

"I can actually say that no sales and purchases are being conducted because the risk margin is high and the market is moving cautiously in light of price shocks,” Mohammad Keshti-Aray also told ISNA.

This means that the gold market made its first natural reaction to the lowered USD rate in a situation where the greenback was a rare commodity in Tehran's currency market and no exchange shops had access to the currency at the announced rate of 42,000 rials yet. 

However, gold coins are expected to further slide. If the USD exchange rate of 42,000 rials and the current rate of $1,342 for each ounce of gold were to prevail, each Bahar Azadi benchmark gold coin will be priced around 13.5 million rials ($321). 

After adding the 9% value-added tax and the cost of minting the coin, each coin will be priced at about 14.5 million rials ($345).

This is while on Wednesday, each benchmark coin was priced at 17.2 million rials ($409) even after the coin lost another 3% of its value. 

As Keshti-Aray said on Wednesday, another reason behind the continuing slide of gold prices is the fact that the central bank has announced new prices for gold presales that began during the closing days of the last Iranian year (ending March 20).

"It's currently not possible to comment on whether there is a bubble in the market because prices have not reached their real levels, but what is certain is that gold and gold coin prices will be on a downward trend even as global prices increased slightly yesterday," he told IBENA.

CBI has expanded the range of its gold coin presales. While previous presales only offered coins at three, six, nine and 12-month maturity periods, it added one-month, 18-month and 24-month maturity periods to the slate.

As announced by the regulator, applicants will be able to refer to all Bank Melli Iran branches and obtain gold coins with one-month maturity periods at 15.9 million rials ($378). The cheapest coins will be offered to people at 11.6 million rials ($276) with two-year maturity periods.

Applicants will be able to entrust the coins to Bank Melli after the maturity period has ended if they choose to, or they can transfer them to someone else through special coin cards offered by the bank that can be used through ATMs.

In a Tuesday interview, CBI Governor Valiollah Seif also said gold coin prices will decline as they are closely tied to USD prices. 

He noted that CBI has set 14.75 million rials ($351) as the presale price for six-month maturity gold coins and 13.5 million rials ($321) for one-year maturity, in what he referred to as "a clear trend".

BMI on Wednesday announced that during the gold coin presales before the new Iranian year (started March 21), people bought more than 1.2 million coins, about 803,000 of which were sold with one-year maturity periods. 

According to the bank, more than 891,000 coins were also sold by April 8, a majority of which had six-month maturity periods.