Recently, the market in Egypt has been experiencing significant fluctuations in gold prices, creating a tumultuous environment for investors and traders. The price of 24-carat gold reached EGP 3,657 (USD 118.76) Egyptian pounds for selling on Friday, 5 January. Reports emerged detailing instances of trading platforms experiencing abrupt shutdowns, resulting in hours-long suspensions of all buying and selling operations.
Nagy Farag, the Advisor to the Supply Minister for Gold Industry Affairs, explained that global factors, including a USD 100 (EGP 3079) increase in the international gold price, have led to the rise in gold prices in the local market, surpassing the unprecedented EGP 3,000 (USD 97.42) mark. Farag also noted that the surge in local demand in a short period leads to unjustified and sometimes illogical increases in prices.
One of the prominent factors contributing to these dynamics is the increasing buying waves for hedging, as Egyptians anticipate a new devaluation of the Egyptian pound expected to take place at the beginning of the coming year in 2024. The General Gold Division of the Federation of Egyptian Chambers of Commerce denied a halt in sales activity in the local markets. However, the rapid price changes led to confusion in some stores, resulting in a temporary suspension of sales for a few minutes to settle buying and selling prices.
Hany Milad, head of the division, attributed the price fluctuations to global changes, including economic difficulties and the US Federal Reserve’s statements about a potential decline in interest rates. Reports suggest that the US Federal Reserve is considering interest rate cuts in 2024, with the concern that high-interest rates could push the US economy into a recession.
Historically, gold has served as a hedge against inflation and a store of value. In 2022, gold rose by EGP 852 (USD 27.67) per gram for 21-carat gold, with a percentage increase of 106.7 percent, while last year it rose to EGP 1480 (USD 48.06) per gram, showing an 87.5 percent rise. Many Egyptians believe that gold helps preserve purchasing power and provide stability during economic uncertainties. The well-established gold market in Egypt makes it easily accessible for investors.
In an effort to control rising prices, the Egyptian government approved the exemption of gold imports accompanying individuals coming from abroad from customs duties and other fees, except for value-added tax (VAT), for a period of six months. Farag notes that the initiative has positively impacted market stability and contributed to the entry of up to two tons of gold into the local market.
Additional insight:
The recent fluctuations in gold prices in Egypt are indicative of the interconnectedness of global economic factors and their impact on local markets. The anticipation of a new devaluation for the Egyptian pound, combined with global changes in interest rates and economic conditions, has contributed to a surge in gold prices. The government’s initiative to exempt gold imports from customs duties has aimed to stabilize the market and provide relief to consumers. Despite the uncertainty and volatility, gold remains a popular investment and store of value for many Egyptians, particularly during times of economic uncertainty.
