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Following
the US and European Union’s decision to tighten sanctions against Iran,
the Iranian rial has started depreciating
dramatically. Many Iranians fear that the rial will
continue to lose value. Last week Iranian television showed images of people
camping overnight at the doors of the national banks in order to recover
their savings. Large sums of these savings are flowing into the US dollar and
into gold.
The rial's downward trend started after the US and the
European Union announced that they intended to boycott Iranian crude oil
exports, in an effort to increase their pressure on Iran to abort its nuclear
programme. The announcement of this boycott has
caused upward pressure on crude oil prices. Some analysts think that oil
prices will rise as high as $150 a barrel next year.
On December
20 the Iranian central bank stopped issuing gold coins. New gold orders will
have to wait up to four months for delivery. The country's political leaders
are anxious to stop the flight from the rial on the
part of ordinary Iranians, and think that making it harder to acquire gold
will stabilise the rial.
The strong devaluation of the rial is leading to
significant increases in the prices of import goods, and political tensions
could intensify. According to the Iranian central bank’s website, last
Friday the official exchange rate for the rial was
of 11,000 rials per US dollar – a drop of
more than 15% in just one month. Iranian citizens fear that their savings
will suffer from further devaluation. Not surprisingly, many are looking to
gold as a means of hedging against this currency risk. The rediscovery of
gold and silver as „crisis assets“ has given rise to a bull
market during the past ten years, which last September saw the gold price
hitting a record high of $1,921.21 per troy ounce.
Images in
Iranian television showed angry citizens camping in front of national banks,
waiting to withdraw their savings. Due to the recent devaluation of the rial, the difference between the official exchange rate
and the market rates has been growing. The gold purchasing restrictions
initiated on December 20 have caused a flight to other assets such as the US
dollar. Meanwhile, the inflation rate has been rapidly increasing, hitting a
high of 19.8% at the end of November. According to official Iranian
calculations, by March of next year, inflation will peak at 21.6%.
But these
calculations are only valid if the economy does not crash – and there
are signs pointing towards this possbility. Besides
crude oil, Iran provides few other important goods or services to people in
other countries. Due to its limited refinery capacities, the country depends
on gas imports – despite being one of the world's largest crude exporting
countries. Tighter sanctions could have fatal consequences for the Iranian
economy. Restrictions at the local gold markets will not avert Iranians from
transferring their savings to gold. Instead, gold prices at the black markets
are expected to rocket higher.
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