Iran's gold demand triples as investors seek safe haven before US sanctions

The country's demand for gold bars and coins grew 200% in the second quarter

Analysts say demand could continue to grow during the rest of the year as the US sanctions come into effect over the coming months, putting further pressure on the currency. ATTA KENARE/AFP

Iran’s demand for gold tripled in the second quarter, reaching a four-year high, ahead of this month’s US renewal of sanctions that has prompted the rial to shed more than half of its value this year.

Sales of gold bars and coins surged 200 per cent to 15.2 tonnes in the second quarter of 2018, the World Gold Council said in a report on Thursday. Analysts say demand could continue to grow during the rest of the year as the US sanctions come into effect over the coming months, putting further pressure on the currency. 

“Iran’s weakening economy, growing sense of insecurity and a currency which has almost halved in value, boosted bar and coin demand,”
the report said. 

Iranians are hoarding gold bars and coins as their economy, battered by years of sanctions, may weaken further when the US imposes an embargo on Iran's energy, finance, shipping and insurance sectors on November 4.

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Global demand for gold bar and coins in the second quarter was flat year-on-year at 247.6 tonnes but investor concerns on currency depreciation drove demand in the Iranian market, the report said. The Iranian rial had slumped over the three months, prompting the rush for gold investments, which are considered a safe haven amid economic volatility. 

The rial dropped to an all-time low this weak but recovered on Wednesday after US president Donald Trump offered to talk with his Iranian counterpart, Hassan Rouhani.

“Looking at the performance of the Iranian rial over the course of 2018 it’s only natural that gold demand has Iranian consumers and manufacturers look to protect against further devaluation in the lead-up to August 6,” said Gaurav Kashyap, market
strategist at Equiti Global Markets. “With the geopolitical situation in the region and political uncertainty domestically, consumers will continue to flock to gold as a safe haven.”

The drop in the rial will "continue to spark Iranian demand going forward," he added.

Demand for gold jewellery in the Middle East in the second quarter continued to struggle against a "challenging" economic backdrop, the report said.

Iran led the regional gold jewellry drop with the biggest loss in the second quarter as Iranian demand fell 35 per cent to 6.6 tons, the lowest quarter in the council's data records.

"Faced with renewed economic sanctions and a collapsing currency, which caused a huge rise in the local price, demand for gold jewellery slumped," the gold council said. "Instead demand was channelled into gold investment products which, unlike gold jewellery, are VAT-exempt, pushing demand for bars and coins to a four-year high. "