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Iranians go for gold amid inflation and currency fears

Jul 6, 2011, 5:48 a.m.

By Mitra Amiri

TEHRAN (Reuters) - 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 can not 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.

The Iranian gold rush was mainly driven by fears about the domestic economy, particularly the risk of soaring inflation and a wobbly currency, he said.

In addition to concerns about a global double-dip recession, the economy has been hit by sanctions as the United States leads global pressure on Tehran over a nuclear program many states say is aimed at building atomic weapons, a charge Iran denies.

"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."

KING AND CLERICS

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.

Iranian authorities have repeatedly denied that sanctions are hurting the country, saying the economy is strong.

But 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.

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