Objective reasons for the rise in gold prices in Egypt

Gold prices (21-carat) – the most prevalent in Egypt – witnessed an increase of 114% during the past year, rising from 786 pounds per gram at the end of 2021 to 1685 pounds in late 2022, and continued to rise during the first third of this year (2023) by 54% to reach about 2600 pounds by the end of last April.

These rises encouraged many to buy gold bullion and coins with the intention of saving, and avoid gold jewelry that loses the "cost of industry" when selling, so demand increased and supply remained limited, and because global prices of gold did not rise to the same extent in that period, gold traders were accused of overpriced, and buyers were accused of those high prices speculating in gold.

Globally, the average global price of gold had risen from $ 1790 per ounce at the end of 2021, to $ 1798 at the end of 2022, and then to $ 1992 at the end of April 2023.

In 2013, global prices fell by 15.5%, while they rose in Egypt by 1%, and in 2016 international prices increased by about 8% while they increased in Egypt by 59%, and in 2020 global prices increased by 27% while in Egypt they did not exceed 21%, and the percentage of growth between the two sides approached in 2021, but it returned and varied greatly last year. The past is rising slightly internationally, and significant locally.

The specificity of gold prices in Egypt

The question remains as to why this difference is made, despite the fact that gold is a commodity subject to international economic and political changes.

Gold traders in Egypt explain that pricing in their country is made through three main factors: the global price of an ounce, the local exchange rate against the dollar, and domestic supply and demand.

Therefore, if the international price of an ounce did not change significantly last year, the other two factors have witnessed a clear change domestically, as the black market has emerged since the beginning of the year, and increased in intensity after the exit of hot money by about $ 22 billion, and the official depreciation of the exchange rate twice during the year did not succeed in restoring it.

Data from the Official Statistics Authority indicate that the value of gold imports fell last year to $ 317 million compared to $ 831 million in the previous year, a decline of 62%, in a country where the number of marriage contracts reached 880,2021 in <>, each of which needs a gift of gold for the bride according to tradition.

This decline in supply affected prices, especially with the rush of many to acquire gold for the purpose of saving with the high rate of inflation, which no longer yields bank deposits of use, and the situation was exacerbated by the resort of some investors to collect gold for export, and to obtain its dollar value abroad to be used in the import of commodity supplies, due to the delay of banks in the management of foreign currency for import.

The result of the above is the rise in gold prices locally for most months of last year.

"Decorations and safe"

Egyptians have many justifications for the rush to acquire gold, summarized by the popular proverb "Gold is an ornament and a treasury", as it is an ornament for women in social events, and a means of saving and investing as its price increases over the years.

The price of a gram of gold (21 carat) reached 263 pounds in 2015, rose to 418 pounds in 2016, 628 pounds in 2017, 778 in 2020, and 1077 pounds in 2022, thus achieving a growth in value that the family benefits to meet the requirements of life.

An elderly man in the northern port city of Damietta tells that naming one of the city's suburbs "Ezbet al-Niswan" (i.e. women) has a story: when the local administration began granting building permits on land on the outskirts of the city, women rushed to sell their gold so that their husbands could buy plots of land to build a house on.

Farmers also used to buy gold with the proceeds of the crop to ensure the preservation of value, and the increase in its acquisition was helped by the fact that some stores sold it in installments, and other stores in rural areas accepted to postpone receiving the price of the "marriage network" until the "points" (financial gifts given to the newlyweds) were collected.

Global and local atmosphere promotes the use of gold

In general, the trend to acquire gold during the past year so far is a rational economic behavior, despite the disagreement over the appropriate price, as it remains a good haven in times of global crises, such as the Corona crisis and the Russian-Ukrainian war.

In April 2023, the International Monetary Fund expected global growth to decline this year to 2.8% compared to 3.4% last year, and a contraction in Germany and England, and that the global inflation rate will reach 7% despite attempts by major countries to reduce it to 2%, and for its part, the World Bank expected last April also that the price of an ounce of gold will rise internationally to $ 1900 compared to $ 1801 last year.

In Egypt, citizens live in a state of economic and political uncertainty, and they see the national currency officially depreciate 3 times in 10 months (from March 2022 until last January), yet the successive "official" decline did not prevent it from further decline in the black market, and there are international expectations of further decline, and news of an expected government decision to reduce a new cut.

In addition, the three credit rating agencies, Moody's, Fitch and Standard & Poor's, currently classify Egypt in a non-investment class, and agree on a negative outlook on it, and news is circulating that Egyptian bonds offered abroad are lower than their offering price, and the value of merchandise exports has decreased in the first two months of this year compared to last year.

The Egyptian government's actions seem ineffective, and there is growing doubt that the currency will soon regain its value, and the acquisition of gold seems a safe option for those who do not have experience in the financial markets or real estate.

There is also the delay in the government project to offer companies for sale to bring in foreign currency to alleviate the problem of dollar shortages, and the postponement of the visit of IMF staff to Egypt, which was scheduled before mid-March without scheduling an alternative date, a visit that will result in granting the second installment of the loan to Egypt.

Failure of measures to remedy the shortage of dollars

There is a state of skepticism about the announced official rates of inflation of no more than 30%, as it is thought that the reality of the increase is much higher, and therefore the savings certificates recently offered by banks with a return of 19% were not popular because they do not cover the rate of erosion of the purchasing value of money, and people continued to get rid of what they have of pounds, and to acquire gold, foreign currencies, real estate or even virtual currencies, despite their risks.

Because the direction of the stock exchange requires special expertise, and investment in real estate and land requires large sums, the gold option seems closer to the reach of many to save the value of their money, and it is also a tried option every time a black market for the dollar appears, and it is also tried in other countries when the price of their currencies fell such as Russia and Turkey recently.

The government's measures appear ineffective, and there is growing doubt that the currency will recover its value soon, as data from the Central Bank of Egypt indicates that the dollar deficit in the banking system has increased at a rate of $ 1.5 billion per month since the beginning of this year to reach $ 24.5 billion.

In light of this, gold remains the best option for many, and the government seems to be aware of this, as the Minister of Supply recently called on the government to allow Egyptians living abroad to enter $10,<> worth of gold duty-free to increase domestic supply.