Egyptians bewitched by new gold investment trend

Egyptians are buying gold coins and bars as global prices shoot up amid the coronavirus pandemic.

al-monitor A royal crown is displayed during the official reopening of the Royal Jewelry Museum in Alexandria, Egypt, Oct. 19, 2014. The museum reopened after a three-year closure due to security reasons. Photo by TAREK ABDEL HAMID/AFP via Getty Images.

Aug 11, 2020

Global jitters triggered by the repercussions of the coronavirus pandemic are bewitching Egyptians into a new gold investment trend. As gold prices shoot up all over the world, demand for the precious metal is picking up in Egypt, where the man in the street is switching to gold bars and coins rather than traditional jewelry to make snappy gains.

“Demand — especially from individuals — for gold bars and coins is rising significantly. This is a new phenomenon in Egypt. Many people are interested in gold coins, which are 21 karat weighing 8 grams each,” Ahmed Abdelaal, chairman of Abdelaal Jewelry Co., told Al-Monitor.

Prices of 21 karat and 24 karat gold were 910 Egyptian pounds ($57) and 1,040 Egyptian pounds ($65), respectively, on Aug. 9. Egypt’s gold sovereign stood at 7,280 pounds ($455).

Abdelaal explained how gold is one of the safe havens, such as properties and certificates of deposits. “Gold is even better than real estate as it could be sold faster and easier,” he said.

“There has been a shortage on the supply side due to the lockdown and flight suspension. Second-hand gold trading has boomed in the local market with rising global prices of the precious metal and growing demand. More and more people have become aware of gold bars and coins as an investment,” Abdelaal said, noting that individuals are seeking gold assets that would be easier to sell.

“Although a supply crunch hit the local market in the first half of 2020 on the back of the coronavirus crisis, demand rebounded as many Egyptians switch to gold as a store of wealth,” Abdelaal said, pointing out that the supply crunch was “global” due to worldwide lockdowns. 

“Worries resulting from the coronavirus pandemic have caused a stampede for the precious metal, not only in Egypt but all over the world, especially from asset management funds that usually drop the greenback to buy gold. This is known as the traditional inverse relationship between the US dollar and gold. That’s why the US currency has been falling worldwide with rising gold prices,” Abdelaal explained.

“Since lifting the lockdown, Egyptians — corporate investors and retailers — have been buying into gold assets, whether jewelry, ounces or even gold sovereigns. In recent weeks, many retailers showed more interest in ounces and gold sovereigns. Business owners and some individuals are interested in gold as an investment option,” Abdelaal said.

However, Abdelaal admits that the price of gold jewelry is very high in Egypt due to expensive engraving and design costs and growing demand.

“I think the price of 21 karat will decline to around 700 pounds [$44] per gram, from around 910 pounds in the coming months as demand eases. Gold prices usually ease after a series of surging,” he forecast.

Maged Azmi, owner of a gold store in Cairo, agreed with Abdelaal that prices would ease. “It’s conditional that the coronavirus pandemic will die out. Global gold prices may continue to increase as long as recession and coronavirus fears persist. The picture is not clear yet,” Azmi told Al-Monitor. 

Data from the World Gold Council, the London-based market development organization for the gold industry, showed that demand for jewelry in Egypt had fallen by 70% to 1.7 tons in the second quarter, down from 6.9 tons in the first quarter.

A World Gold Council report pulished July 30 said that H1 global jewelry demand almost halved to 572 tons amid the global disruption caused by the pandemic.

Answering a question on how the World Gold Council data showed a decline in demand while Egyptians are buying into gold assets in general, Azmi explained that the council’s report shows only fresh supply of the precious metal within a country.

“There were no flights between March 19 and July 1. The traded gold on the local market was either locally produced or second-hand jewelry, bars and coins. The World Gold Council data don’t include second-hand trades. With the resumption of imports, the situation will be different as of the third quarter,” he noted.

Azmi said the culture of holding gold is the same, but with a different target. “In the past, Egyptians from all walks of life used to buy mainly jewelry. Today they are more attracted to bars and coins as an investment. This is a new trend,” he added.

“Ahead of Eid al-Adha — the Muslim feast of sacrifice — sales of jewelry usually increase as young men seeking marriage buy 'shabka' [gold gift given to a bride]. Traditionally, the shabka should be in 21 karat gold, but demand for the cheaper 18 karat jewelry is on the rise,” he said.

Moreover, the man in the street is seeking to make a few more pounds by buying and reselling second-hand jewelry, bars and coins. 

“For me gold is becoming a lifetime investment compared to properties. When I need cash I would sell it easily and immediately. It might take weeks or even months to sell a property at the desired price,” Seham Ayoub, a public servant, told Al-Monitor. “I made around 10% gains in only two weeks. A bank deposit would make maximum 15% yields in a year. Gold is better as long as you know when to buy and resell.”

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