Tuesday, April 18, 2006

Fluctuations in Gold and Foreign Exchange Markets

Hamid Ahadi, Rooz Online:
While the concern over Iran's nuclear file has undeniably impacted the country's economy, government officials are hoping that their propaganda on uranium enrichment will somehow reduce the pressures on the market in Iran. Sky rocketing prices of gold and foreign exchange, and the sluggish situation of the stock market and real estate in Iran are the consequences of Iran’s problems with the international community over its nuclear policy.

In an interview with Rooz, a business market expert said that the government had enjoyed the benefits of its large foreign exchange savings and used it to control inflation and price fluctuations while demand for goods kept rising.

Based on estimates published by Tehran market experts, the demand for gold is rapidly rising and the Central Bank of Iran has been unable to control the demand. And even though Iran’s daily have been barred from writing about current foreign policy issues (i.e. the nuclear standoff), Hamshahri newspaper run by Tehran’s municipality on Wednesday wrote that the psychological impact of the nuclear crisis had shot the price of gold to unprecedented levels, and reduced the interest rate of the banking system, which has negatively impacted the size of the bank’s savings funds shifting capital from there to gold. READ MORE

The manager of Kargoshaie Bank has said that in recent weeks the bank decided to increase the amount of its daily gold sale in an effort to meet market demand and thus slow down the rise of the price of bullion. The Central Bank controls and dictates the price of gold coins sold to the public and it raised the price by some 8.43% to Rials 1,517,700 (a US Dollar is worth over 8,000 Rials on the Iranian black market).

Experts stress that the slag stock exchange market is due to the uncertainty that has clouded the decision makers and the country in general. Based on a law, the new regulations of the stock market should have been implemented 3 weeks ago but nothing has happened yet and president Ahmadinejad administration has in fact violated the law.

By injecting government money into the market, the government and Iran’s Central Bank have only been able to control the foreign exchange rate. Experts anticipate that the foreign exchange rate for a US dollar would have increased by some Rials 2000 by now had there been no official intervention.

The government-controlled media have been silent on the negative impact of Iran’s rapidly deteriorating international standing on the domestic economic and business markets and are informing the public of the rising world oil price, claiming that the time for collecting wealth has arrived. The government has also embarked on increasing imports most likely to build up reserves as contingency plans for possible sanctions etc.

International business sources have said that exactly two years after Iran celebrated its independence from purchasing international wheat during Khatami's government, the country has once again returned to the market as a major wheat buyer. It seems that the reason for this return and purchase is both higher domestic demand caused by a lower production, and also the policy of building up reserves for possible eventualities. International business magazines report that Iran's noisy entry into world's wheat market has increased international prices as well.