Could Iranian Sanctions Boost the Price of Gold?

Secretary of State Mike Pompano recently announced the US will impose the “strongest sanctions in history” on Iran. This follows Trump’s decision to pull the US out of a nuclear deal agreed to during the Obama administration.

The US withdrawal from the accord means the reimposition of sanctions that had been lifted, and Pompano said the US plans to impose new sanctions in order to put “unprecedented financial pressure on the Iranian regime.” The previous sanctions virtually banned all trade with Iran with some exceptions for exports of products “intended to benefit the Iranian people” such as medical supplies. It remains unclear what additional measures the Trump administration plans to take.

But Iranians could skirt these restrictions by doing business in gold.

Iran already has experience selling oil for gold. Before sanctions were eased under the Obama administration, Iran’s state-owned oil company circumvented sanctions by selling oil for Turkish lira and then buying gold. Christian told Forbes, “If you go back to the period before 2015 Iran was one of the largest places for gold demand at times.”

This will likely put upward pressure on prices.

Analysts say sanctions will also increase demand for gold by the Iranian people as they try to cope with their economic impact. Iran is already dealing with rampant inflation running at around 70% annually. A Johns Hopkins University economist said the inflation rate will likely accelerate with the reimplementation of sanctions.

The devaluation of the rial creates significant problems for Iranians looking to preserve purchasing power and wealth. According to the CPM reports, private citizens cope by buying a lot of gold.

The imposition of strict sanctions will almost certainly increase the demand for gold significantly in Iran, both by the government and everyday people. This increase in demand will likely put upward pressure on the global price of the yellow metal.

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