Middle East gold bar demand climbs in 2018 as Iranians seek to protect savings

Iranian purchases more than quadrupled amid re-imposition of US sanctions

Middle East gold and bar-coin demand surged last year as Iranians hoarded bullion as a safe haven investment amidst the re-imposition of US sanctions and the economic mayhem that ensued, according to a report from the World Gold Council.

The region’s demand more than doubled to 87.1 tonnes from a year earlier, thanks to the quadrupling of purchases in Iran to 61.8 tonnes from 19.2 tonnes a year earlier, the trade body said on Thursday.

“The [Iranian] central bank’s decision to increase the number of coins it released into the market helped satisfy Iranian investor demand and boosted global coin demand,” said the report. “After an exceptionally strong third quarter, Iranian demand eased a little in the final quarter. The rial strengthened following the central bank’s intervention in the foreign exchange market, and authorities moved to limit gold speculation by closing the coin futures market.”

Iranians rushed to buy gold in 2018 to protect their savings after the Iranian rial plummeted 70 per cent against the US dollar amid high inflation and shortage of foreign currency in the run-up and after the US withdrew from a nuclear deal with Tehran.

Iran arrested and in some cases executed a number of traders in gold coins last year amid the economic crisis gripping the country, according to media reports.

Meanwhile, Jewellery demand in Iran plunged 35 per cent to 29.5 tonnes last year as Iranians struggled with the currency’s weakness.

The drop in Iranian demand was the steepest in 2018, helping drag down overall Middle East demand by 15 per cent to 168.2 tonnes.

Globally, central bank purchases for gold, the highest since 1971 when US dollar convertibility into the metal was suspended, helped buoy overall demand last year. It was also the highest annual total on record.

Central Bank’s bought 651.5 tonnes of gold in 2018, a 74 per cent year-on-year increase. The financial organisations now hold almost 34,000 tonnes of gold.

“Heightened geopolitical and economic uncertainty throughout the year increasingly drove central banks to diversify their reserves and re-focus their attention on the principal objective of investing in safe and liquid assets,” said the report.

“Despite a decade passing since the global financial crisis, times seem no less certain. Central banks reacted to rising macroeconomic and geopolitical pressures by bolstering their gold reserves.”

One-fifth of central banks are inclined to increase gold purchases over the next 12 months, according to a recent World Gold Council survey.

Some 76 per cent of the central banks “view gold’s role as a safe haven asset as highly relevant, while 59 per cent cited its effectiveness as a portfolio diversifier”, according to the poll.