An extensive study of the Iranian gold market – the first in the 25 years since the Islamic Revolution in 1979 – indicates that Iran has become a major gold consuming country in recent years.

 

The study, commissioned by the World Gold Council and supported by the Iran Trade Promotion Organization (ITPO) and the Australian Trade Commission (Tehran), was undertaken by Grendon International Research (GIR) between June 2004 and July 2005.

 

According to GIR’s conservative estimate, total gold consumption appears to have been at least 139 tons in 2004. While GIR’s jewelry consumption estimate of 118 tons in 2004, including unofficial imports, ranks Iran as the world’s 6^th largest gold jewelry consuming country in 2004 – after India, USA, China, Turkey and Saudi Arabia.

 

The size of Iran's gold market is not really surprising, given the country’s population of 69 million, (similar to that of Turkey) and its traditional commitment to gold, which has been an integral part of its culture for more than 5,000 years.

 

During the period of the ancient Persian Empire (550-330 BC), its capital Persepolis (the ruins are near Shiraz) was famous for being the “richest city under the sky.” When the city was sacked by Alexander the Great in 330 BC, oral history recorded that he used 7,000 pack animals to carry away about 300 tons of exquisite Persian gold ornaments and jewelry, bars and coins. Even today, many Iranians frequently refer to this ancient golden era.

 

In addition, there are also limited opportunities to invest surplus funds or savings outside “land or gold.”

 

ROLE OF GOVERNMENT

Since the Islamic Revolution, the official view of government institutions had been that gold was a “luxury” product, and the gold industry did not warrant significant government attention. However, Iran's gold market is now so large, that several government initiatives are being taken to monitor and support the gold jewelry industry including:

 

Licenses – In 2005, a major program was initiated to license the many unlicensed gold jewelry retailers, wholesalers and fabricators. They are being allocated “ID codes” for use in all transaction documents.

 

Hallmarking – In 2005, the Institute of Standards & Industrial Research of Iran introduced a new system. It is envisaged that over time all gold jewelry fabricated in Iran will be hallmarked with the fabricator’s “ID code” and the Institute’s symbol for authorized caratages: 22, 18 and 14 karat gold.

 

Exports – The ITPO is embarking on a major program to promote the export of Iranian gold jewelry. An Export Development Fund for Gold, Jewelry, Silver, & Watches of Iran was established in 2005, including an office in Dubai. Gold jewelry exports have been low historically – less than four tons in 2004.

 

Import duty on gold bars – The 4 percent duty on official bar imports is reportedly under review. If eliminated, the unofficial import of bars on which the market largely relies, would be curtailed.  

 

GOLD JEWELRY

The size of the jewelry market is reflected in the number of jewelry retail outlets. According to a 2005 survey conducted by the ITPO in each of Iran’s 30 provinces, there are at least 15,500 outlets. According to trade entities, this number has increased by around 20 percent over the past five years, notably in the major cities.

 

A striking feature of the market is fragmentation. There are no large, or even small, chains of retail outlets. The outlets are individually owned and run by families.

 

Eighteen karat gold is the dominant caratage, accounting for around 85 percent of total jewelry consumption. Twenty-two, 21 and 20 karat jewelry is also fabricated, but under the new hallmarking system 21 and 20 karat gold will be eliminated. Although there is now a hallmark for 14 karat jewelry, this caratage of jewelry is not actually available.

 

Although traditional jewelry accounts for about 70 percent of national sales, there is growing demand for European-style jewelry (30 percent), much of which is imported. White and mixed-color jewelry is also popular, notably in the major cities. The bangle, however, is the most important product category, accounting for around 50 percent of the total market.

 

Gold jewelry is bought as an adornment, but the investment dimension is also important. Personal self-purchases account for around 60 percent of total consumer purchases, followed by weddings (25 percent) and other gifts (15 percent).

 

However, although women purchase and receive much gold jewelry, it is not worn visibly in public places. It is normally worn under clothing or at home or at private functions.

 

To analyze the market geographically, GIR grouped Iran’s 30 provinces into 6 regions. Two regions account for about 65 percent of national jewelry consumption: the Northern Highlands and Caspian Coastline region (40 percent), which includes Tehran; and the Zagross and Markazi region (25 percent), which includes Esfahan and Shiraz.

 

Seasonal demand by region varies, but for most regions purchases tend to be higher in March (prior to the start of the Persian New Year on 21 March), and between June-September.

 

Gold jewelry production is largely concentrated in five cities: Tehran, Esfahan, Tabriz, Mashhad and Yazd, with the bulk of fabrication occurring in Tehran (45 percent) and Esfahan (30 percent).

 

Although there are at least 6,000 fabrication units according to the ITPO survey, the market relies heavily on small units employing five or fewer workers. It is reported that there are only around 50 units employing 20 or more workers, although some employ more than 80. The reason is that units with more than five workers are subject to various government constraints and taxes.

 

Larger units, well aware of the high level of imports, advise that with further government support they would be able to compete more effectively against innovative international fabricators. Their repeated observation is that they are not able to operate on a “level playing field”.

 

Their main requests are that the 4 percent import duty on bars be eliminated, that they have an opportunity to loan gold for fabrication purposes, and that there are incentives to develop their units into substantial enterprises. They are aware that the structure of Iran’s fabrication network closely resembles that of Turkey 15 years ago and that Turkish government initiatives have greatly assisted the Turkish gold jewelry industry: large enterprises, few imports and strong exports.

 

Due to the current fragmentation of the fabrication and retail networks, the bulk of jewelry output is distributed not by fabricators but by more than 600 wholesalers nationwide and dominated by the wholesalers in Tehran who reportedly account for around 70 percent of the wholesale market.  

 

Interestingly, for a gold market the size of Iran, there is no gold jewelry advertising by retailers or fabricators in the press, on TV or on billboards. Retailers rely entirely on loyal customers and passing traffic to generate sales. Nor is their any promotion at the retail outlet: no show cards, no competitions, and no incentives to purchase. There are also no jewelry trade fairs.

 

The only advertising medium is “Gold & Jewelry” magazine, which is available to the trade and consumers on news stands. However, there are no advertisements or photographs of women wearing jewelry.

 

To put the findings of the Iran research study into perspective, the Iranian gold market has been greatly underestimated in recent years because it has not been on the radar screen. It truly is a major gold market in hiding.

 

 

The article is based on a presentation by Nigel Desebrock on the Iranian gold market at the Dubai City of Gold Conference in April 2006.

 

Nigel Desebrock established Grendon International Research Pty Ltd (GIR), an Australian-based company that focuses on the gold industry, in 1989. Apart from consultancy, GIR has published several industry reference works, including The Industry Catalogue of Gold Bars Worldwide (1998) and An Introduction to the Indian Gold Market (2002).