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Monday, June 16, 2008

Iran’s switch good news for gold bulls?

Posted by Ambrose Evans-Pritchard on 10 Jun 2008 at 13:18

Good news for long-suffering gold bugs. Iran is switching a chunk of its $80bn reserves into bullion.

opens new browser window: Graph Gold seasonal chart: click to enlarge

Mohsen Talaie, the deputy foreign minister in charge of economic affairs, said Tehran was pulling its money out of euro instruments (presumably Bunds, BTps, EIB bonds, etc) to avoid sanctions over its nuclear weapons programme.

“Upon the decision of the government’s task force a segment of Iran’s foreign exchange assets will be converted into real assets such as gold and stocks,” he told Iran’s Etemad-e Melli newspaper.

Europe is planning to freeze the assets of Iran’s biggest bank Melli. A draft communique for the EU-US summit on Thursday confirms that Europe is ready to join the crack down on Ahmadinejad.

It all goes to prove the gold bug axiom that nations - like people - will invariably turn to bullion as the ultimate store of value when all is threatened.

Iran’s demarche did not seem to help gold prices today. It slid $9.5 to $883 an ounce, off almost $150 since the giddy heights of February, despite the surge in oil prices. But then the gold angle to this news has not been given any prominence.

But then too, there are a lot of headwinds. As you can see from this 26-year season chart, gold tends to have a rough patch from April to early July. It then rockets in September and October (ceteris paribus).

The Iran news may have hurt the euro, which dived in morning trading. The concerted drive by the Fed, the US Treasury, and even President Bush to talk up the dollar before the G8 meeting in Japan may have spooked the dollar shorts. Hank Paulson used the word “intervention” for the first time. It would be dangerous to take on the combined might of the world’s fortress banks.

With oil at the current price, Iran is building up reserves fast. If it parks a 20pc or so of the build-up in bullion could be enough to swing the gold market (tiny by comparison with energy).

But then you never know. These regimes talk with forked tongue.

When I asked Barrick Gold’s Peter Munk in Davos whether it was significant that Vladimir Putin had ordered his central bank to switch 10pc of Russia’s reserves into gold, he just laughed. “That must mean Putin wants to sell gold,” he said.

Nothing is ever what it seems.

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