The forex rally is joining hands with gold coins to form a double whammy that heats up the market for safe haven assets.
After staying in the support level of 80,000 rials, the USD's exchange rate reportedly reached a high of 89,000 rials in the open market and Bahar Azadi gold coin broke another all-time record by fetching 32.92 million rials ($765 at the official exchange rate) on Sunday. The coin registered a 3.79% increase compared with the previous day, according to Tehran Gold and Jewelry Union's website.
In the futures market, the benchmark coin is being traded at 37.21 million rials ($1,127) for delivery in late December, Financial Tribune reported.
The appeal of safe haven assets is heightening, as the deadline for the first round of US sanctions is approaching in August.
US President Donald Trump in May pulled the United States out of a 2015 nuclear pact with Iran and ordered tough sanctions against Tehran. Washington has also asked its allies to cut imports of Iranian oil by November.
Iranian President Hassan Rouhani on Sunday cautioned Trump against pursuing hostile policies, saying, “America should know ... War with Iran is the mother of all wars,” the state news agency IRNA reported.
On Saturday, Iran Mercantile Exchange suspended new trading at the futures market. According to market observers, the move only intensified the rally as prices soared to new heights.
In fact, 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 a run on the rial.
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 the 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 had to allow limited free forex trade through a secondary market.
The secondary foreign exchange market began work earlier this month, with reports suggesting that the first transaction took place at a negotiated rate close to that of the open market.
The new rally in the foreign exchange market comes, as the government continues to be under fire for devising a foreign exchange policy that has proved to be catastrophic.
Going the Wrong Way
The biggest issue raised by critics is the multi-tier currency system wherein certain goods received cheap currency while others did not. The rent-seeking and corruption observed in the aftermath of the decision are dark policy issues that continue to stalk the administration.
In an editorial in the Persian economic newspaper Donya-e-Eqtesad on Sunday, Masoud Khansari, president of Tehran chamber of Commerce, Industries, Mines and Agriculture, took the government to task for turning a blind eye to 53 requests by the private sector group to reform its forex policies, including a letter to President Hassan Rouhani to end the allocation of hard currency at the 42,000-rial rate.
As the country faces a shortage of hard currency ahead of the first round of US sanctions, criticism has also been directed at the government and the central bank for allocating cheap currency to outbound tourists.
The forex and gold market volatility was also accompanied by a series of revelations about abuse by recipients of cheap forex and astronomical profits made overnight by individuals who invested heavily in the gold coin and forex markets.
Earlier this month, Tehran Police Chief Brigadier General Hossein Rahimi told reporters that his forces tracked down a person who had bought 2 tons of gold coins.