Downward spiral causes crash in Egypt’s gold prices

Gold prices went down in Egypt in the first week following the 10-day Eid al-Adha holiday in early July despite a rise in selling and buying operations. 

On Aug. 3, the price of a gram of 24-karat gold dropped by about 4 Egyptian pounds (21 cents), to 1,178 Egyptian pounds ($61.66). This type of gold is the most expensive in Egypt because of its high quality. 

On the same day, the price of a gram of 21-karat gold in Egypt fell to 1,030 Egyptian pounds ($53.92). The 21-karat gold is currently the most prevalent caliber in Egypt.

The price of the 21-karat King George gold coin, which weighs 8 grams, dropped by 32 Egyptian pounds ($1.68) to record 8,240 Egyptian pounds ($431.31). This type of gold is popular in Upper and Lower Egypt.  

The price of the 24-karat gold pound, which weighs 31 grams and is one of the highest quality of gold in Egypt, fell to about 36,518 Egyptian pounds ($1,911).

Gold prices in Egypt vary depending on the karat. The 24-karat gold is the most expensive of all gold and has the highest level of gold purity, standing at 99%. Meanwhile, the price of gold jewelry includes the price of raw gold used in the making and the cost of workmanship, which varies from one goldsmith to another and from one company to another.

Global gold prices fell in mid-July to their lowest levels in nearly a year despite increasing demand for gold triggered by the Russian invasion of Ukraine and subsequent inflation.

On June 21, gold prices on the global market hit $1,682 with the start of trading in the morning, according to Bloomberg.

Naji Farag, adviser to the minister of supply for gold industry affairs in Egypt, told Al-Monitor that the gold price outlook depends on global developments related to the Russia-Ukraine war and added that gold is still seen as a safe haven and a reliable store of value. Farag pointed out that demand for gold remains high in the Egyptian market.

Amr al-Maghraby, a member of the Gold Division at the Cairo Chamber of Commerce, expects gold prices to continue to slide in Egypt until the US Federal Reserve concludes its meetings in late July. He stressed that gold prices in Egypt are linked to the change in the US interest rates on the dollar.

Speaking to Al-Monitor by phone, Maghraby explained that gold prices are inversely proportional to the worth of green paper currency. Gold prices hike with lower dollar index and interest rates, and they drop, along with global gold prices, when dollar index and interest rate increase, he explained.

Maghraby stressed that Egyptians sold gold when the government banks issued high-yield savings certificates of up to 18% within a year. Yet it did not take too long before the market stabilized and gold sales in shops resumed, he said, adding that the imposition of taxes on workmanship did not affect the sale of gold on the local market. 

On June 15, the US Federal Reserve announced the biggest interest rate rise in nearly 30 years. This came after it raised the interest rate by 75 basis points to a range of 1.75%. This is the third increase since March after inflation in the US rose unprecedentedly in June.

Investors and international financial institutions are awaiting the fifth meeting of the US Federal Reserve scheduled for Sept. 21, after the Fed decided to raise its key interest rate by 0.75% for the fourth time in a row this year during its previous meeting held on July 27. Another meeting is also set for Dec. 14.

Hany Gayed, head of the Gold Division of the Cairo Chamber of Commerce, agreed with Maghraby about the reason behind the decline in gold prices in Egypt. He said local prices dropped by 250 Egyptian pounds ($13.19) during the past two months, impacted by the drop in the global gold prices from $1,800 an ounce to $1,765, after the US Federal Reserve hiked the interest rate. The Fed’s move has negatively affected the rest of the currencies, stock markets and gold rates, he explained, adding that investors sold gold to take advantage of the high interest rates in US banks.

The National Bank of Egypt (NBE) and Banque Misr collected 750 billion Egyptian pounds ($39.5 billion) in 71 days from the high-yield savings certificate they introduced on March 21, before suspending it on May 30.

Commenting on the impact of imposing a value-added tax on gold workmanship on gold sales, Nadi Naguib, former secretary-general of the Gold Division at the Cairo Chamber of Commerce, told Al-Monitor by phone that the tax on workmanship did not lead to a significant impact on the sales, explaining that the cost of workmanship is low and varies according to the quality of gold product and gold shops.

He added that the percentage of the price drop of an ounce is lower compared to the price per gram. He pointed out that the price per gram in Egypt fluctuated during the past months. After hitting a 1,250 Egyptian pound ($65.95) high, it decreased to 890 Egyptian pounds ($46.95) before it increased again to 1,000 Egyptian pounds ($52.76) and re-dropping to 975 Egyptian pounds ($51.44), before once again increasing and settling on 1,030 Egyptian pounds (about $54), he said.

Naguib went on to say that gold prices benefited from the investors’ increased appetite to buy gold as a safe haven due to unstable economic conditions globally. He added that gold prices hit a record high before they fell slightly, which provided the citizens with a good opportunity to buy gold amid expectations that it would go high again in the future.