Forex Rates and Gold Back to Record Highs

EghtesadOnline: After a brief lull, currency rates again rallied against the rial on Sunday. The dollar was quoted at 273,000 rials in Tehran’s open market, up 7,000 rials, or 2%.

News ID: ۷۵۱۰۵۰

21 September 2020

Keeping pace with the upsurge, licensed exchange bureaus affiliated to the Central Bank of Iran pushed up prices to avoid arbitrage.

A dollar was quoted at 273,000 rials at Melli Exchange, affiliated to Bank Melli Iran, up about 7,500 rials, or 3% compared to the previous session’s close, according to the Tehran Gold and Jewelry Union website.

When price difference in the open market and the CBI exchanges widens, the so-called bank-based moneychangers, tend to first push up currency rates to bridge the gap and then try to control the market with lower rates.

As for other currencies, the euro gained about 10,000 rials or 3.5% and was quoted at 323,000 rials in the open market. The British pound sterling rose 2.9% and was sold at 354,000 rials. The UAE dirham fetched 74,500 rials, up from 73,000 rials quoted on Saturday.

The latest spike in currency rates is said to be mainly due to political factors arising from the United States’ newest bid to tighten economic sanctions against Iran.

Earlier last week, the Governor of Central Bank of Iran Abdolnasser Hemmati said fluctuations in the forex market is linked more to external and less to domestic economic factors.

He described the US ploys to reactivate United Nations sanctions against Iran as “propaganda” to hurt the currency market, noting that currency dealers, brokers and speculators are trying to use (misuse) the US hostile moves to jack up prices.

The US has threatened to trigger a return of all UN sanctions on Iran using a provision in a 2015 nuclear deal between Iran and world powers, known as snapback, even though the embattled US president, Donald Trump, abandoned the historic accord in 2018.

The move is strongly opposed by other powers. In a joint statement with Germany and the UK on Sunday, the French Foreign Ministry said the US has no authority to demand a snap-back in sanctions against Iran after quitting the 2015 nuclear deal two years ago, Bloomberg reported.

Gold Higher

As the domestic gold market in heavily influenced by forex rates, the precious metal gain outweighed currency rates giving rise to concerns about a new bubble in prices.

Emami gold coin made a big leap on Sunday, rising 5 million rials to climb above the critical 130 million rials. The coin was traded at 132.65 million rials throughout the day, closing the session 4% higher, according to TGJU.

Bahar Azadi gained 1% to reach 120 million rials and one gram of 18-karat gold was worth 12.49 million rials, up 3.6% compared with Saturday’s close.

Given the closure of most world markets on Sunday, it seems that that the domestic currency spike was the determining factor in rising gold prices.

Gains in the precious metal compared to higher forex rates means that gold is traded far above its real value in Iran. Emami Gold coin was traded about 9 million rials above its real value on Sunday, according to the Persian economic news website eghtesadnews.

Gold prices rose on Friday in world markets as the dollar slipped, while lackluster US employment data and vows by major central banks to roll out further stimulus if required to revive their coronavirus-hit economies also bolstered the metal's appeal, Reuters reported.

Spot gold climbed 0.4% to $1,951.13 per ounce, having fallen to a one-week low in the previous session. US gold futures were up 0.6% at $1,960.80.