Message from Gold to Iran: "A Little Help Here? Oh Thanks!!"

Iranians seem to be rushing towards gold as a safe haven during these tough times.

According to the official Islamic Republic News Agency, Iran’s central bank is going to raise the rates that lenders pay on deposits in an effort to control volatility in both the gold and foreign currency markets.

Yesterday, Kazem Delkhosh, a member of the central bank's Council of Money and Credit, said, “The council has decided to fix the rates for bank deposits at a rate higher than inflation,” and that the actual decision will be announced next week. Currently, inflation is at 20.6 percent.

A little over a week ago, Iran sang quite a different tune what with the governor of the Central Bank of Iran, Mahmoud Bahmani, saying, "I declare absolutely that the international sanctions have not created any economic problem for the country."

Yet per Bloomberg, Iranians have been rushing to buy gold and dollars in the past few weeks, "sending the rial currency plunging, on concern the government may be unable to maintain economic stability as international sanctions tighten." As the U.S. and European Union move toward an embargo on oil purchases and restrict dealings with its central bank, even more pressure will be placed on not only Iran's nuclear program, but most likely the country's entire investing population. Now I'm not one to take pleasure in another's misfortune, but strictly speaking for gold and gold only - this is sort of 'good' for increasing gold demand.

How much more demand EXACTLY some might ask? Well, that is a very difficult question to answer but first off, one of the more obscure signs we have to go off of are the fact that last November, their finance minister urged people against buying gold and U.S. Dollars while authorities allegedly blocked access to mesghal.com, which was a popular website for Iranians interested in tracking prices for gold purchases. I'm sorry but people want what they can't have, and when what they want is as important as getting food on their tables, you're just asking them to try even harder...

Gold industry information service, Grendon International Research (GIR), stated last week that Iran's gold market is "substantial." Per a 2008 GIR publication, one of the main reasons why we don't have much access to specifics on Iranian gold demand is the fact that, "... until 2005... no research company had previously been able to investigate the market since the establishment of the Islamic Republic of Iran in 1979." So we've got some very varying estimates on the scale of Iranian gold demand.

For example, according to a 2006 article for the London Bullion Market Association's Alchemist publication, GIR's Nigel Desebrock estimated Iranian gold consumption in 2004 to be "... at least 139 tonnes," of which 118 tonnes was from people purchasing gold jewelry. Whereas VM Group's Yellow Book conservatively estimated Iranian gold jewelry consumption to be 45.6 tonnes. More recently, the VM Group estimates 2010 gold jewelry consumption in Iran to have dropped to 34.4 tonnes, but still ahead of other countries like Germany, the UK, France and Spain.

Another indication of gold purchasing can be witnessed by how much the rial is falling. According to rates in Tehran's currency bazaar, which is the main unofficial venue for foreign exchange transactions, the rial has dropped almost 30 percent in value in less than 3 months. Today’s market rate has the rial pegged at 16,900 per dollar, while the central bank states an official rate of 11,262 rials.

Honestly, though, whether Iran has consumed 34.4 tonnes of gold again this last year, or 89 tonnes, the fact that Iranians are rushing towards gold and the fact that authorities are doing whatever they can, which is very little, to prevent this, may be just what gold price needs to continue the bullish run it has been trailblazing since the end of 2011. I certainly hope so. 'Till next time!

Be safe, be wealthy and above all else, be happy.

- Mitch

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