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Forex and Gold Jump - Financial Tribune

F oreign currencies continued to gain against the rial during the six-day lockdown in the unofficial market in Tehran as geopolitical risks loom and uncertainty mounts in the region and beyond.

On Saturday the dollar broke above the resistance of 270,000 rials and was quoted at 273,000 rials gaining 4,000 rials or more than 1.5%.  

The upsurge came in the absence of key players in regulating the currency market, namely official exchange bureaus affiliated to the Central Bank of Iran due to the lockdown announced by the government on Monday to contain the fresh wave of Covid-19 that has cut down more than 100,000 lives.  

The euro climbed 0.7 % or 2,000 rials to 319,300 rials while the UK pound sterling closed unchanged at 373,700 rials. The UAE dirham gained more than 3% or 2,400 rials to close at 74,500 rials.

A combination of political factors has fuelled volatility in the forex market in the recent days. One key factor is the political turmoil in the eastern neighbor, Afghanistan.

With the Taliban taking control of the war-ravaged country, forex rates have surged in Afghanistan's northwestern city of Herat near the border with Iran. This is seen as a signal to the currency market in Tehran, according to the Persian-language economic website, Eqtesad News.

Increase in forex rates in towns bordering Afghanistan have increased demand in other parts of the country as traders are allured to buy cheaper currency and sell it higher in the border regions.  

In addition, political unrest in the eastern neighbor has disrupted its trade with Iran due to the closure of border crossings, the Persian-language economic newspaper Donya-e-Eqtesad said.

Diminishing prospects for the revival of Iran’s 2015 nuclear deal, known as Joint Comprehensive Plan of Action (JCPOA), is another key factor impacting sentiment in the chaotic currency and gold market.  

The newspaper pointed to statements by Robert Malley, the United States special envoy for Iran, who has said rejoining the accord “is not something that we can fully control”.

In a talk with The Politico on Thursday, Malley linked delay in restoring the accord to mistrust sowed during the Donald Trump administration’s “maximum pressure” campaign and the political transition in Iran.

Observers also blame currency market turmoil and rising prices to lack of a significant intervention by the Central Bank of Iran as the CBI awaits a new head to be appointed by President Ebrahim Raisi.  The transition process has apparently undermined the CBI’s leverage in intervening in the currency market as in the past.  

Gold Higher

As expected, upswing in the currency market spurred a rising trend in the domestic bullion market. One Emami gold coin was sold for 121.5 million rials on Saturday, IRIB news, quoted  Mohammad Kashti-Aray, the vice president of the Tehran Gold and Jewelry Union, as saying. The popular coin was 3.2 million rials or 2.6% higher compared to the pre-lockdown price on Monday.

Half Bahar Azadi bought 61 million rials, up 1.5 million rials compared to the previous session and one gram of 18-karat gold surged to 11.6 million rials.

In the international market gold edged higher on Friday, helped by worries over a spike in Covid-19 cases that could muddy the global economic outlook, but gains were capped as it had to compete with the dollar to attract investors seeking safe-haven assets, Reuters reported.

Spot gold was up 0.2% at $1,783.97 per ounce and up about 0.3% on the week and US gold futures were up 0.2% at $1,785.70.