TEHRAN: Leafing through an old family photo album, 74-year-old Molook Amini wished she could afford to buy a gold coin as a wedding gift for her youngest grandchild as did for others.
“It was always a tradition to give gold coins to close family members on special occasions. This year for the first time I cannot afford to do it anymore.”
Whether for wedding gifts or as a way to squirrel away savings, Iranians have a long history of buying gold coins, widely available from dealers in high street shops and bazaars. But recently, what was a steady demand has become a gold rush.
Amid global economic uncertainty, the price of gold on world markets rose steadily in the first half of 2011 and Iranian coins appreciated in line with that. Rather than cashing in their coins for a profit, Iranians continued to buy them in ever larger numbers.
“Usually, as the price of an item increases, demand will decrease. But in the case of gold, it seems that higher prices are creating more demand,” said a gold retailer in Tehran who asked not to be identified.
Iran’s gold rush was mainly driven by fears about the domestic economy, particularly the risk of soaring inflation and a wobbly currency, he said.
“The reasons that people are drawn to these safe assets – gold coins and hard currency – are firstly a limited choice of investment opportunities, and secondly a fear from the weakness of the national currency,” said an economist who asked not to be named.
“These are results of more potential economic instability in the country.”
Treasured as a store of value, Iran’s gold coins, minted over centuries, are also culturally important.
They were traditionally stamped with the faces of kings. After the 1979 revolution, the Islamic Republic started to issue Bahar-e Azadi (Spring of Liberty) coins, some of which were engraved with the image of Ayatollah Ruhollah Khomeini, who led the uprising against the last shah.
Produced by the Central Bank of Iran, a standard gold coin weighs 8.133 grams. It is also sold in smaller denominations of a half coin and a quarter coin.
In June the price of a Bahar-e Azadi gold coin reached an all-time high at around 4,550,000 rials ($422), compared to a year ago when it sold for around 3,120,000 rials.
Many Iranians are worried that keeping their wealth in rials is a risk.
“We can keep the coins at home and feel secure,” said Mohammad, a 39-year-old stock trader who said financial sanctions have made it harder for normal Iranians to transfer capital abroad, for example to buy property in Dubai or Europe.
“In the current situation there are people who can move their capital and invest in other countries, but we as ordinary people have no choice but to invest in gold coins,” he said.
Saving rials is also less attractive than a few months ago after the government reduced the level of interest banks could pay on savings. Returns were slashed in April from a range of 26-28 percent to 14-17 percent, below what many Iranians believe to be the actual inflation rate.
Worries about the declining buying power of the rial and doubts over the currency’s stability are the main drivers behind the flight to gold.
As well as hoarding gold, many Iranians sought to change their rials into hard currency, increasing demand for dollars so much that the Central Bank devalued the rial by almost 11 percent last month.
That sudden decision did nothing to assuage Iranians’ fears about the safety of their savings.
Many economists believe the rial, which is loosely pegged to major world currencies under a “managed floating exchange rate,” has not been allowed to devalue in line with inflation and is overvalued by between 30 and 50 percent.
As international trade in rials is very limited, the change in its value has no real impact on global markets. It sank to 12,500 to the dollar last month, compared to 10,500 earlier in the year.
Back in her apartment in northern Tehran, Grandma Molook hopes she might still find the money to buy her granddaughter the gold coins. “I’m afraid I’ll have to buy her a household appliance,” she said. “Or just give her the cash.”