Gold Rally Cools, Not Its Bubble

EghtesadOnline: After gold coin’s continued rally in the past month, which pushed its value to the highest level in nearly six years in Tehran’s market on Monday, the yellow metal’s surge lost momentum over the coming days and recorded two significant drops consecutively on Wednesday and Thursday.

News ID: ۷۴۴۴۸۷

25 November 2017

Emami, the benchmark gold coin, fetched 14.41 million rials ($351.4) at its peak on Monday but it recorded respective drops of 170,000 rials and 180,000 rials during the next two days and sold for 14.05 million rials ($342.6) on Thursday.

This is while according to Tehran’s Gold and Jewelry Union, Bahar Azadi, the other benchmark gold coin also cooled down on Wednesday but on a lower scale compared to its sister Emami. It changed hands for 13.53 million rials ($330) until the end of the Iranian week on Thursday.

However, according to gold market analysts, there is still a 2-million-rial ($485) bubble in the price of gold coin–when compared to its global prices–which they deem anomalous, calling on regulating bodies to act swiftly for containing it, Financial Tribune reported.

While the head of Tehran’s Gold and Jewelry Union believes the sudden leap in gold coins’ prices and their unprecedented bubble in Iran mainly stem from unreal and speculative demand in the market, the official emphasized that the unreal demand emerged in the market because of lack of supply.

“People responsible for regulating the market should probe the reasons behind this surge, as it is not natural and since it is not natural, it needs to be controlled,” Mohammad Keshti-Aray was also quoted as saying by the official news website of Tehran Chamber of Commerce, Industries, Mines and Agriculture.

According to the official, the current bubble in the gold coin price is unprecedented.

Waiting Implosion

Another gold market expert and risk analyzer, Mohammad Hossein Adib, emphasized that the rally has come about only through "financial engineering" and it is only a bubble waiting to bust.

“Only a handful of market speculators injected enormous resources of gold into the market and hoarded a huge amount of gold coins to intentionally increase the prices,” Adib told Boursepress.ir.

According to Adib, the next step would be to sell those hoarded coins to regular buyers who intend to benefit from the bullish market, but in the end, the bubble will implode and speculators will rack up considerable profits as people who bought those coins at exorbitant prices will lose on their investment.

The market analyst noted that it is time for the Central Bank of Iran to intervene in the market and put an end to the bubble by injecting gold coins into the market.

Adib advised people who have collected gold coins to sell them as soon as possible since the rally is going to end in the near future.

Other types of gold coin, namely Half and Quarter Bahar Azadi, stayed more or less flat in the past few days and changed hands for 7.18 million rials ($175.1) and 4.04 million rials ($98.5) on Thursday, respectively.

The recent bull run for the gold coin is also thought to have been fanned by the surge in the exchange rate of the US dollar, which traditionally gains around the New Christian Year when demand for hard currency grows for travel purposes.

Others also point their finger at government officials, suspecting a move by them to plug holes in its annual budget through a weaker rial.