“What’s going to happen initially, people will try to convert whatever they have into dollars or gold or whatever is of value that’s not going to depreciate,” Metals Focus analyst Cagdas Kucukemiroglu told Bloomberg on Wednesday. “Then next year the demand will gradually start to go down but it’s not going to be drastic. The base is already very low.”
In the next few months gold demand is looking to be “strong” in Iran, Kucukemiroglu added, pointing to historical examples.
Based on the World Gold Council’s (WGC) data, when a previous set of sanctions was imposed on Iran in 2012, gold demand began to drop only after two years. And in 2016, demand for the yellow metal hit a six-year low, reaching only 45.1 metric tons, which was 65% lower than in 2013. A year later there was a recovery, with demand hitting 64.5 metric tons last year, according to the WGC.
On Tuesday U.S. President Donald Trump announced that he is withdrawing from the Iran nuclear deal and reinstating “U.S. nuclear sanctions on the Iranian regime” as well as introducing “the highest level of economic sanctions.”
Trump described the 2015 international agreement as a “decaying and rotten structure” that is “defective to its core.”
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American sanctions on Iran will be re-introduced after 90 days, said the U.S. Department of the Treasury.
Also, when making gold demand estimates it is important to keep in mind Iran’s weak rial currency, which has been boosting bar and coin demand, said Kucukemiroglu. In the first quarter of 2018, gold bar and coin purchases more than tripled as rial tumbled to record lows against the U.S. dollar.
But, weak currency in the long-term might force Iranians to sell their gold for cash, Kucukemiroglu pointed out.
“If sanctions stay, the economy will get poorer. Gold is a good way to get cash when you need it,” he said.
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