Coin Bubble Defies Auctions

EghtesadOnline: In order to contain the recent rise in gold coin prices and their unprecedented rally, the Central Bank of Iran held auctions on Nov. 25 to dampen the gold fervor but the move has failed to achieve the desired results so far.

News ID: ۷۴۴۵۴۶

10 December 2017

The price of Bahar Azadi gold coin surged to 14.50 million rials ($345.23) on Nov. 21 to mark the benchmark gold coin’s highest value since six years ago.

Since then and after five auctions held at Bank Melli Iran-affiliate Bank Kargoshaee, the price of Bahar Azadi gold coin hovered around 13.64 million rials ($324.7) to mark a drop of 860,000 rials in less than three weeks, Financial Tribune reported.

However, as gold market experts believe, the price of benchmark gold coin still stands higher than what it should be according to global markets. In fact, the gold coin surged again after the auction and fetched 14.015 million rials ($337) on Sunday down by 130,000 rials from Saturday, according to Tehran Gold and Jewelry Union’s website.

This is while according to an international economic analyst, the presence of gold coin speculators in those auctions did not let the bubble burst.

“At first when the auctions began, the prices were close to the real value of the gold coin but mass buyers and speculators immediately offered higher prices to buy the gold coin packs–in some cases even higher than the rates in the open market,” Abouzar Najmi was also quoted as saying by Iran Chamber of Commerce, Industry, Mines and Agriculture’s news website.

According to the expert, people who intend to invest their limited savings in gold coin cannot afford to buy the packs and in truth, market speculators determine the price of gold coin packs in auctions.

“On the other hand, the auction of gold coin is beneficial for CBI and as the government is facing a credit crunch, it seems that the bank is not really eager to let the bubble  crash and let the prices go down,” he added.

According to Najmi, in order to deflate the gold coin bubble, the first supply should increase so much that the market goes out of speculators’ hands and gold packs sold in auctions should be compatible with the people’s purchasing power.

This is while the head of Majlis Economic Commission also expressed concerns that gold coin auction could even boost speculative activities in the domestic market.

“A few groups of regular people could possibly benefit from the auctions but the real benefits will again go to speculators. Hence, we suggest that auctions be stopped immediately for some measures to be taken based on specialized assessments,” Mohammad Reza Pour-Ebrahimi was also quoted by ISNA.

This is while the head of Bank Kargoshaee has announced the set prices for both Bahar Azadi and Half Bahar Azadi gold coins in the sixth round of auctions.

“Considering the 9% value-added tax, the base prices of Bahar Azadi and Half Bahar Azadi gold coins have been set at 12.62 million rials ($304) and 6.31 million rials ($152), respectively,” Masoud Soleymani told IBENA.

The price of Bahar Azadi gold coin without adding VAT has been set at 11.5 million rials ($275.7).

He announced that a total of 20,000 gold coins have been sold during the five previous auctions and the sixth auction took place on Saturday at Kargoshaee Bank.

The starting price for Bahar Azadi gold coin–exclusive of VAT–in the first auction was set at 12.8 million rials ($304.7), which indicate that the starting rate in the sixth auction has decreased by 1.3 million rials ($31).