Domestic gold prices had surged at the same pace as currency rates since the spring of last year when the market took a hit from the new US economic sanctions.
Now with foreign currency in calm waters for months, gold has lost its luster for investors disappointed with the poor returns, causing the gold bubble to deflate.
From what is increasingly visible, gold is in reverse gear and residing in negative territory with the domestic market lagging behind global trends and sounding the alarm that the precious metal could be exposed to the threat of smuggling, Financial Tribune reported.
“Price of one gold coin [in the domestic market] is currently 500,000 rials below global prices,” Mohammad Keshti-Aray, president of the Specialized Gold and Jewelry Commission at the Iran Chamber of Guilds was quoted as saying by IRNA.
According to Keshti-Aray, each gram of 18 carat gold is also sold at 50,000 rials below prices in the international markets.
“This has given rise to smuggling gold outside the country,” he said.
For months, bubbles formed a big portion of the nominal price of gold coins in the domestic market under influence of the soaring forex market.
The surge in price of the yellow metal in global markets, however, has deflated the gold bubbles in the domestic arena, causing the gold coin to drop below real prices.
Not Good!
“Lower gold prices in the domestic market compared to global prices are not something good,” Keshti-Aray said.
Spurred by the escalating trade conflict between China and United States, international gold prices have soared nearly 27% since October 2017, to more than $1,500 an ounce.
The last time gold was as expensive was in April 2013, after it declined from its August 2011 recession high of $1,917.
In world markets, gold prices fell as much as 1.4% on Friday as the US and China reached a partial trade accord. Spot gold fell 0.8% for the day to close at $1,483.
The bubble for Emami gold coin is currently -500,000 rials in the Tehran market and the tag for the benchmark Bahar Azadi gold coin was -400,000 rials as of 15:00, local time Sunday.
At the apex of currency market volatility in summer 2018, the bubble went as high as 4,000,000 rials.
The metal in the form of gold coins was once at the core of Iranian investors’ interest, who sought quick returns and safe havens to protect their assets in the face of steep forex volatility and tanking of the rial.
The rial had plummeted more than 50% after the beleaguered US President Donald Trump abandoned the landmark 2015 Iran nuclear agreement and announced tough economic sanctions last year.
The currency has regained more than 40% of its value over the past months.
Gold coin prices fell 30% in the past 12 months from 55 million rials last October to below 40 million rials now.
Bahar Azadi gold coin sold for 39.7 million rials on Sunday in Tehran, marking 0.28% decline compared to the previous day's close. Emami Gold Coin was priced at 39.6 million – down 0.13% compared to Saturday’s price.
Keshti-Aray ascribed the main reason for what he described as “negative bubble” in the gold market to drastic decline in demand, noting that investors have turned to parallel markets, in particular the stock market.
Analysts tracking Iran’s stock market say the benchmark of Tehran Stock Exchange has soared 80% since the beginning of the current fiscal year in March.