Declining value of the Egyptian pound to blame for increasing price of gold locally

Zeinab El-Gundy , Friday 19 Aug 2022

Ahram Online looked into why the price of the gold in Egypt has recently surged to nearly 10 percent more than international rates, revealing that it is largely due to the declining value of the Egyptian pound against the dollar.



A fortnight ago, the prices of the precious metal in Egypt spiked, reaching the highest point in two months, unlike prices abroad.

According to the Egyptian Gold and Jewelry Trade Division in the Egyptian Federation of Egyptian Chambers of Commerce, the price of 24k gold on Monday reached EGP 1,204 per gram while the price of 21k gold reached EGP 1,054.

The local prices have increased around 10 percent compared to internationally, which has seen the price of 24k gold hover around EGP 1,086 and the price of 21k gold around EGP 950.

Wassefy Wassef, the former president of the division of jewellers in Cairo Chamber Commerce, explained this by saying that gold prices in Egypt are heavily influenced by international circumstances.

“Internationally, there is still no end to the Ukrainian-Russian crisis and its impact on the NATO countries. And in the past three weeks, other issues have suddenly appeared like the tensions that took place between the United States and China over Taiwan and the tensions taking place between Serbia and Kosovo,” Wassef told Ahram Online.

“As long as the political situation in the world is unstable, gold will remain a safe refuge and valued investment for governments, investment banks and funds. That is why the price of gold soars abroad.”

However, regarding the local hike in prices over the past two weeks, Wassef noted that this is due to one major factor: the dollar exchange rate.

For example, local banks and the Central Bank of Egypt (CBE) have raised the value of the US dollar in the local market by four to six piasters in just the past few days.

Likewise, the difference between local and international prices since early 2022 was due to the depreciation of the Egyptian pound in Q1 of 2022, according to the World Gold Council (WGC)

Amid the global economic crisis, experts say, people tend to invest in gold, which is seen as safe; consequently, the demand was high in Q1.

On Thursday, the US dollar exchange rate was stable, but up by a few piasters from previous weeks. At the National Bank of Egypt (NBE) and Banque Misr, the rate was EGP 19.10 for buying and EGP 19.16 for selling, according to state-owned news agency MENA.

On 21 July, the rate at NBE and Banque Misr was EGP 18.88 for buying and EGP 18.94 for selling.

Earlier in March, the Egyptian pound plunged to its lowest value in nearly five years against the US dollar, trading at EGP 18.10 for buying and EGP 18.20 for selling, down from EGP 15.6 and EGP 15.7. The 15 percent decrease came at the time due to a decision by the CBE’s Monetary Policy Committee (MPC) to raise the key interest rates by one percent (100 basic points).

“I do not expect any decline in [gold] prices soon as tensions between world powers increasing,” Wassef predicted.

Price increases effect on local markets

“If you return ten years, you will find that the price of gold increased in the range of 20 percent annually and this is something no other investment or saving tool can give you [in terms of profit]. In Egypt, however, we have high bank interest rates, yet it will not reach this number,” Wassef said.

However, statistics show that this was not the case in Q2 of 2022 compared to Q1 in Egypt given the fluctuation of gold prices in the local market.

Reporting on gold demand trends globally, the WGC showed that Egyptian consumers bought 8.7 tonnes of gold jewellery in 2022’s Q1 and 7.7 tonnes in the Q2.

Though WGC indicated the depreciation of the Egyptian pound led to the increase in the local prices of gold, it noted that demand in Egypt fell in Q2 of 2022, as there was a local increase in price of gold even more than the average price abroad.

On 31 March, during the 2022’s Q1, the price of the 24k gold in Egypt was EGP 1,108 per gram while the price of 21k gold was EGP 970. While during Q2, the price of the 24k gold price locally was around EGP 1,146 per gram while the price of 21k gold was EGP 1,003, meaning that the local prices increased by around 3.4 percent in Q2 compared to the Q1.

This comes in contrast to prices globally, according to the WGC, which witnessed a six percent decline during the same period

Moreover, experts think that adding to the rise in prices, consumers were drawn further away from gold in Q2 by the introduction of 18 percent investment deposit certificates issued by state-owned banks.

On 21 March, the NBE and Banque Misr offered certificates of deposit with an 18 percent interest over one year. The proceeds from the new certificates reached EGP 13 billion one day after their issuance, exceeding EGP 500 billion by mid-April, according to official announcements of the two banks.

Short link: