Record-Breaking Gold Jewellery Demand in Iran as USD Goes Down on Weak Data

The gold market has a few reasons to be happy right now. In a country like Iran, where politics and finances don’t work like we are used to in the western world, it’s odd to see how new positive records are set regarding the yellow metal’s consumption.

While the entire Middle East is suffering from low oil prices, a trend that is making massive damage to oil-dependent countries like Russia and Venezuela, Iran seems to be looking somewhere else.

The Iranian economy is rising slowly and the gold jewellery demand is one of the clearest signs of it. There was a 27 percent increase in comparison with last year’s demand. According to the World Gold Council’s recent report, this is quite surprising due to the financial contraction of the region.

Regional Effect

While the traditional correlation is gold-U.S. Dollar, this time we are also seeing how oil and the yellow metal are interacting in the Middle East. A proof of this is the gold demands serious decrease in Arab countries like United Arab Emirates, Saudi Arabia, and Egypt, places where the precious metal in form of bullion and jewellery is extremely popular.

Nonetheless, this decrease doesn’t translate into negative numbers. Gold demand in the region continues to be on the positive ground. The demand for the yellow metal in multiple formats increased by 5 percent during this quarter, which is the highest number since the third quarter of 2015.

A Negative Data Report

In a usual move from the Federal Reserve, investors were disappointed by economic performance and unaccomplished promises. The Empire State Manufacturing Activity Index fall dramatically in May, generating negative numbers. What this report meant is a potential power and capacity decrease for the U.S. manufacturing sector, which has been suffering from the forced measures taken by Trump Administration.

With these results, the promised aggressive interest rate hike is not going to happen. Mr. Mark To, who is the head of research at Wing Fung Financial Group in Hong Kong, said that “in the shorter term it (weaker U.S. data) could lift gold prices to a certain extent as it ensures the pace of the interest rate hikes do not accelerate.”

In only one week, expectations of a hike fell from 84 to 74 percent, an indicator of investors’ disappointment. But the negative data report and the Fed’s role is only a piece of the puzzle that is now benefiting buyers of gold bullion.

Global Turmoil that Helps Gold

Mr. Mark To also believes that the recent ransom-ware worldwide attack and the quickly-escalating situation in North Korea are two key elements for the precious metal to enjoy record-high prices in the short term. The expectations in numbers go beyond the US$1,245 per troy ounce, a scenario that may surprise a few people.

With the Trump Administration insisting in the Pacific Ocean, poor performance numbers for the U.S. economy, and Iran performing great during an important oil-caused contraction, investors may be getting a little bit anxious.