Is Iran Dampening The Price Of Gold?

Includes: GLD
by: Felix Pinhasov

With unprecedented money printing and credit expansion by central banks in addition to the great macro uncertainty, one should rightfully be perplexed at the behaviour of gold (NYSEARCA:GLD) prices. Instead of steadily climbing to reflect the world we live in, it has lost about $40/oz in less than two weeks, or about 2.3 percent.

The technical picture is not encouraging either. Sentiment indicators reflect a downtrend that is yet to be broken, while the MACD is also flashing a warning sign. To make the picture even gloomier, the 50-day moving average is about to cross the 200-day moving average in the coming weeks (unless prices tick up suddenly).

Of course technical indicators/oscillators are just tools that ultimately react to fundamentals; and the fundamental basis for gold is strong. Whether you attribute the recent decline to technical sellers, or strength in the USD, it seems to me that one factor cannot conveniently tell the entire story.

Due to financial sanctions on the Iranian Central Bank and institutions that do business with it, the Iranian regime is now forced to become innovative in manoeuvring around those sanctions. Without the capability of growing enough food domestically, Iran has little choice but to import essentials such as wheat, rice and palm oil from Asian suppliers.

Recent reports of Iran paying for those essentials with gold and oil might explain the weakness in gold. As the rice and palm oil suppliers receive the gold payment, they essentially dump it on the market to generate the needed working capital to pay for supplies, employees, taxes, etc. I doubt those suppliers keep the physical gold for price appreciation.

Thus, the question becomes for how long can the Iranians sustain this payment method?

According to IINS, the Iranian central bank is holding about 500 tonnes in gold reserves; but then again, the Iranian regime is not exactly the most transparent in the world.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.