Will Others Realize What The Iranians Have Discovered About Gold?

Written by Chris Marcus for the Miles Franklin blog.

For folks like Ben Bernanke, Warren Buffett, and Mark Cuban, who publicly act as if they are completely perplexed by why anybody would have any interest in gold, perhaps they would be well served to notice the recent developments in Iran.

Where in the face of a rapidly declining currency, many are turning to gold.

“Iranians are hoarding gold as a safeguard against a collapsing local currency and soaring cost of living as the U.S. is poised to impose economic sanctions on Iran, pushing the metal’s price to records in Tehran.”

So why would they turn to gold as their response?

Worried about a shaky economy and enticed by government sales of gold coins, Iranians have converted savings into gold recently even as prices skyrocketed. Demand for gold bars and coins in Iran tripled year-over-year in the second quarter to about 15 metric tons, according to a World Gold Council report on Thursday. Iran’s central bank has minted hundreds of thousands of new coins—more than 60 tons of gold in total—to feed the demand. The move has had little impact beyond stoking more demand for the metal.

“People are changing their money into gold because it’s a reliable investment commodity,” said Mohammad Kashtiaray, the head of gold and jewelry committee under Iran’s Chamber of Guilds, a coalition of merchants.

Basically Iranians are turning to gold for all of the same reasons that many in the precious metals community in the United States and elsewhere have turned to gold. Because they see what’s happening to the paper currencies.

It just happens that the devaluation of the currency is in a more advanced stage in Iran, than in the United States or many of the other western developed nations.

But when you consider that the reasons for the devaluation of the Rial exist even more so in regards to the dollar (at least if you look at the real numbers as opposed to the biased government figures that have been revised and doctored), it’s not hard to imagine a similar effect for gold as priced in dollars.

Inflation and unemployment are both in double digits this year, and the economy is expected to shrink next year as sanctions bite. More alarmingly, Iran’s currency, the rial, has seen a record weakening this year—currently trading at roughly 101,000 per U.S. dollar compared with about 43,000 in January, according to Bonbast, a site that tracks unofficial exchange rates.

There’s was also another interesting comment in the article that investors would be well-served to take heed of.

“The access to dollars isn’t there to the same extent [as elsewhere],” Mr. Hewitt said. “So gold is one of the only alternatives they can get exposure to.”

With interest rates rising and the Federal Reserve removing its quantitative easing purchases, this effect is only going to be further exacerbated going forward. As evidenced by the recent turmoil in many of the emerging markets.

The Fed is pulling dollars out of the system, and the effects are finally being felt. And whether the central bank is aware or willing to acknowledge it or not, there are consequences to be paid for the past decade of monetary policy.

As a result, the citizens of Iran are recognizing what’s happening and getting ahead of the curve by buying gold.

Fortunately there’s still time left for you to do the same.

–Chris Marcus

To buy or sell gold and silver call Miles Franklin today at (1-800-822-8080).