Tehran Forex, Gold Markets Bullish

EghtesadOnline: Foreign exchange rates and gold coin prolonged their rallies on Monday, amid news of President Hassan Rouhani deliberating changes in his economic team, which will likely replace the governor of Central Bank of Iran as his five-year term is coming to an end.

News ID: ۷۴۵۷۰۴

24 July 2018

According to reports from the unofficial market, the US dollar's exchange rate crossed the resistance level of 90,000 rials on Monday and the benchmark gold coin Bahar Azadi jumped above the psychological threshold of 34 million rials ($790 at the official exchange rate).

Gold coin for delivery in December in the futures market has approached 40 million rials ($930), according to Tehran Gold and Jewelry Union's website.  According to the website, Azadi registered a 4.13% increase compared to the previous day.

Monday's volatility intensified after the heated exchange between Rouhani and US President Donald Trump on Sunday, Financial Tribune reported.

Trump threatened Iran with hardship "the likes of which few throughout history have ever suffered before". His pugnacious tweet in capital letters late Sunday followed Rouhani's warning to "not play with the lion’s tail” after the US unveiled a series of measures that amount to a declaration of war.

Also on Sunday, US Secretary of State Mike Pompeo announced in a speech that the Trump administration had launched a "maximum pressure campaign" targeting Iran and its economy.

Other foreign currencies also gained against the rial on Monday with euro increasing more than 3% and its exchange rate reaching 107,110 rials. The rial was quoted at 120,170 to the pound.

The head of Tehran Gold and Jewelry Union said news about Rouhani-Trump broadsides on the social media were the major factor behind the gold coin bull run.

Ebrahim Mohammad-Vali also told Tasnim News Agency that due to the rise in prices, demand for gold coin has dropped.

"If a unit [of jewelry shop] had 20 daily customers a year ago, it receives only 2 customers at present," Mohammad-Vali said, adding that the volatility has caused much confusion in the market.

On Saturday, Iran Mercantile Exchange suspended new trading at the futures market. According to market observers, the move has only intensified the rally and prices soared to new heights.

Recent measures by the Central Bank of Iran and the government in pre-selling gold coins and temporarily allowing banks to raise interest rates have had little effect in preventing the run on the rial.

Economic Reshuffle

As criticism has intensified over the government's economic policies, it is becoming evident that President Rouhani will reshuffle his economic team.

In addition to CBI governor and Economy Minister Masoud Karbasian, the head of Management and Planning Organization and the main organizer of Rouhani's policies, Mohammad Baqer Nobakht, has also faced the public ire.

The new rally in the foreign exchange market comes, as the government continues to face heat for devising a foreign exchange policy that has proved to be catastrophic.

The government decided to unify the US dollar's exchange rate at 42,000 rials on April 9 in response to volatility that saw the rial sink to all-time lows against the greenback.

At the time, it also banned the physical trade of hard currency by exchange shops and the trading of US dollar at any rate other than the official rate.

However, after a deluge of demand for imports at the attractive unified rate, the government was compelled to allow limited free forex trade through a secondary market.

The secondary foreign exchange market, which began work earlier this month, has also failed to calm the frenzy since, according to analysts, it lacks enough depth and scope.