CAIRO – 4 January 2024: Recent weeks have witnessed unsettling fluctuations in gold prices across Egypt. As of today, January 4, 2024, the per-gram price of 24-karat gold stands at almost LE 3600.
The price of gold increased by almost 13.1 percent during 2023 and recorded its highest historical level last December 3 for $2,146.79 for an ounce, according to American Bullion.
Advisor to the Supply Minister for Gold Industry Affairs, Nagy Farag, said in statements to Egypt Today (ET) that gold had risen globally by more than $100 and this affected the prices of gold here in Egypt driving it to reach more than LE 3,000.
In Egypt, the gap between the official exchange rate and the black market gold prices has widened, creating economic challenges such as instability of pricing across goods. The official exchange rate is typically set by the government or central bank and is meant to reflect the currency's value against other currencies.
However, due to various factors such as economic instability, currency devaluation, or limited access to foreign exchange, the official exchange rate may not accurately reflect the true value of the currency. In such situations, individuals and businesses turn to the black market, where gold prices are often higher due to supply and demand dynamics. Most merchants do not follow the official exchange rate which as of this article’s date is LE 30.95 but rather LE 50-52.
Several factors contribute to this instability and the hike in gold prices. Head of the Jewelry and Goldsmithing Division, Hany Milad, attributes the fluctuation to changes in the global prices of gold.
“Existing disturbances such as wars and economic difficulties, in addition to the US Federal Reserve’s latest statements about the decline in interest rates on the US dollar all contribute to the increase in gold prices,” Milad told ET.
Milad also added that though he cannot predict exact numbers or duration, however, he said that current indicators predict that there will be an increase in gold prices.
According to recent reports, officials at the U.S. Federal Reserve are anticipating a series of interest rate cuts in 2024. The United States of America’s Central Bank's most recent summary of economic projections, released in December 2023, suggests the possibility of three cuts throughout 2024, with each cut being a quarter-percentage-point decrease.
Following the aggressive increase in borrowing costs since March 2022, aimed at curbing inflation, the situation has evolved. Inflation has since significantly declined from the highs experienced during the pandemic, and there is a concern that maintaining elevated interest rates could push the U.S. economy into a recession.
If the cuts materialize, it would mark the first time since the early days of the COVID-19 pandemic that the Fed has reduced rates, as they had previously slashed rates to near zero to strengthen the economy. Nonetheless, there remains considerable uncertainty regarding the timing and pace of the Fed's potential rate cuts this time around.
Is gold a safe haven for investment?
Gold is a potentially good investment tool in Egypt. Historically, gold served as a store of value and a hedge against inflation.
In Egypt, where inflation rates fluctuate over time, gold can help preserve purchasing power and provide a level of stability during periods of economic uncertainty. This characteristic makes gold an appealing investment option for Egyptians especially as it is easily accessible in Egypt.
“Gold is primarily a savings and a safe haven as it preserves cash value. It is not a short-term investment tool, gold is for long-term investment and you can see its returns after a year or two,” Milad said.
Egypt has a well-established gold market with numerous jewelers offering gold products, such as bullion and coins, for purchase. This accessibility allows investors to easily enter and exit the market, providing liquidity and flexibility to their investment portfolios.
“If someone has sufficient and available liquidity, they can invest in gold as it is a good investment,” Farag advises.
Government Response
The Egyptian Cabinet approved extending the zero-custom initiative for gold imports by Egyptians abroad for six months to end in May 2024.
The decision to extend the initiative comes in response to its positive impact on the market, ensuring a stable and balanced environment for gold trade.
Under the extended zero-custom initiative, Egyptian citizens residing overseas will continue to benefit from relaxed regulations when importing various forms of gold. This includes semi-manufactured gold, gold intended for currency trade, and jewelry parts that are either made from or coated with a layer of precious metals.
“The government has implemented the Zero Customs initiative on gold which contributes positively to market stability and contributed to the entry of up to 2 tons of gold into the local market” Farag added.
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