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Iran to Take Gold Payments From Trade Partners, Agency Says

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Feb. 29 (Bloomberg) -- Iran will accept payments from trading partners in gold in addition to dollars and other currencies, central bank Governor Mahmoud Bahmani said, according to the official Islamic Republic News Agency.

Any nation can pay in its own currency, and Iran has already accepted goods as payment from China and India, the central bank said, according to IRNA. Iran will accept gold from any country, Bahmani said, according to the news agency.

The European Union and U.S. have imposed sanctions to protest Iran’s nuclear program, restricting trade and financial transactions. The U.S. and its allies say they suspect the program is a cover for developing atomic weapons, a contention Iran has denied, maintaining it is for civilian purposes.

“This is a confirmation of gold’s status as a store of value, a universal currency,” Michael Cuggino, who helps manage about $15 billion of assets at Permanent Portfolio Funds in San Francisco, said by phone. “It transcends national borders.”

Gold has rallied for 11 years as investors sought a hedge against inflation and an alternative to currencies. Investors are holding a near-record 2,394.2 metric tons in bullion-backed exchange-traded products, more than all but four central banks, which are expanding reserves for the first time in a generation. Futures reached a record of $1,923.70 an ounce in September and traded little changed at $1,786.60 at 7:35 a.m. in New York.

‘Unusual’ Use

Using gold as payment would be “unusual” due to the costs and risks involved, said Catherine Schenk, a professor of international economic history at the University of Glasgow. She’s also a member of U.K. research institute Chatham House’s task force for gold.

“For a country like Iran, they’re going to want to have physical ownership,” Schenk said by phone. “If you actually have to transfer the gold, there are all the insurance and freight costs involved in that. Between countries, there used to be quite a lot more gold settlement, but not so much anymore.”

Israeli Prime Minister Benjamin Netanyahu is scheduled to meet President Barack Obama at the White House March 5 amid speculation that Israel may launch a military strike against Iran’s nuclear facilities. The increased geopolitical tension has helped to boost the price of crude, with oil futures in New York gaining 8.3 percent this year to $107.06 a barrel.

The U.S. does not intend to offer concessions to get Iran to engage in negotiations over its nuclear activities, Secretary of State Hillary Clinton told the Senate Foreign Relations Committee yesterday. The U.S. anticipates “a very hard-nosed negotiation” with Iran, she said.

Transfer Ban

An Obama administration official said yesterday that Iran’s action reflects its inability to engage in normal financial activity, and the EU has decided to ban transfers of gold and other precious metals to help block efforts to evade sanctions.

A second U.S. official said Iran’s efforts won’t exempt its trade partners from the U.S. National Defense Authorization Act, which includes a freeze on assets of the Central Bank of Iran and sanctions on overseas financial institutions that engage in arms-length transactions with Iran’s central bank. The officials spoke on condition of anonymity in order to discuss the administration’s internal assessment.

“They are doing this because gold has always been viewed as an alternative currency,” said Wei Chishan, an analyst at Shanghai Metals Market, which has more than 400 researchers.

Central banks bought a record 439.7 tons last year and will continue adding bullion in 2012, according to the producer-funded World Gold Council. India and China are the world’s biggest bullion consumers.

To contact the reporter on this story: Yi Tian in New York at ytian8@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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