Since the beginning of 2023, gold prices have surged by over 50 percent amid uncertainty in the market regarding the real causes behind these unprecedented rates.

On Wednesday, the per-gram purchase prices of 24-karat, 21-karat, and 18-karat gold amounted to EGP 3,006, EGP 2,630, and EGP 2,254, respectively. On 1 January 2023, prices of 24-karat, 21-karat, and 18-karat gold stood at EGP 1,914, EGP 1,675, and 1,436 respectively, per gram.

On the other hand, global gold prices are relatively stable. Bloomberg’s data show that the price of an ounce has stabilised at $2,016. The per-gram price averages $71.1.

Comparingly, gold prices in Egypt are nearly EGP 1,000 higher than global prices. Ahram Online approached experts to explore the key causes of the surge in gold prices and solutions to mitigate the effect on the gold industry.

A matter of supply and demand

"Gold is considered a safe haven for many Egyptians. The recent surge in prices has resulted in an increase in demand, while the supply is limited. The increase in gold prices has nothing to with the exchange rate," Hani Milad, head of the Gold Division at the Cairo Chamber of Commerce explained to Ahram Online.

Milad expects prices to stabilise in the near future to keep pace with global levels.

Locked market

"Due to the shortage in US dollars, which affects gold imports, Egypt has become a locked market. The government prioritises securing basic commodities by its dollar reversers, which means that gold imports will remain stalled," said Fady Kamel, the CEO of the investment group at Dahab Masr.

"Another factor that has greatly disrupted the balance between supply and demand in the Egyptian gold market is the sharp decline in the sales or re-sales of gold. People are hoarding gold and few are selling. The demand currently exceeds supply by 3 to 1," Kamel added to Ahram Online.

As a solution, he suggested incentivising citizens to dispose of their holdings of the greenback, through investment, and to sell their savings in gold.

"On 1 January 2023, the per-gram price of 21-karat gold amounted to EGP 1,657 and it is now valued at EGP 2,630, which represents nearly a 60 percent increase. Inflation could have eroded two-thirds of those gains, but there are still reasonable earnings achieved, which should be satisfactory enough for people to sell their gold at the current price levels," the top executive elaborated.

"With the unstable global geopolitics, gold will still be a safe haven for many, considering the future outlook for the global economy. Therefore, global gold prices are expected to increase and impact prices in Egypt even if the market is still closed," he added.

CDs losing their shine

In Egypt, certificates of deposit (CDs) worth EGP 750 billion ($24.27 billion) matured in March 2023; their proceedings amounted to $885 billion. Egyptian banks began to issue CDs with even higher yields in April, but they did not manage to attract all the disbursed yields, which means that there is a huge amount of liquidity in the market seeking an investment alternative.

Gold has been one of the safer options for Egyptians to protect their savings against inflation and the devaluation in currency, in addition to CDs and real estate. However, with the current pace of inflation, many Egyptians seem to limit their options to gold.

"The yields offered for the new CDs are way less than the inflation rate, which drives people to invest in gold as a safe option," Kamel commented.

In the market

"The market has become unstable to the extent that each shop could have its own pricing. I bought some gold jewellery from a customer last week before prices see another hike and I shouldered a painful loss," a gold vendor in Khan Al-Khalili told Ahram Online.

"Most of the gold purchases are directed towards ingots, not jewellery. People are rushing towards gold to save the value of their money," he added.

The gold seller complained that supply is limited in the market and that both purchases and sales are stagnant.

Proposed solutions

Ministry of Supply Ali Moselhi stated on Saturday that gold prices are subject to supply and demand and that they cannot be overridden by any intervention from the government’s side.

Moselhi said Egypt’s gold supply is limited and cannot keep up with the recent surge in demand.

The minister announced in a press conference that a proposal may be submitted to the cabinet to allow Egyptians to bring a limited amount of gold with them from abroad, in a bid to decrease prices in the local market.

In a phone-in with a talk show on the Al-Hadath Al-Youm channel, Nagi Farag, advisor to the minister of supply for gold manufacturing, stated that the decision will have a positive impact and will control the market.

Moreover, the head of the Gold Division stated that the new proposal limits the value of gold Egyptians are allowed to bring from abroad to $10,000.

The CEO of Dahab Masr told Ahram Online that the recent proposal will not have a big impact on the current situation, but it could somewhat mitigate its negative ramifications on the market.

Egypt's gold input

“The depreciation of the Egyptian pound in late October – following a previous devaluation in March – encouraged demand for a safe haven and inflation hedge. Fourth-quarter demand more than doubled year-on-year as a result, taking annual demand 83 percent higher to 4.4 tons,” said the Gold Demand Trends Full Year 2022 report by the World Gold Council. Egypt bought 47 tons of gold in 2022, the report stated.

The report highlighted that annual gold demand jumped by 18 percent to 4,741 tons in 2022, reaching an 11-year high.

Egypt's gold exports grew by 45 percent to reach $1.633 billion in 2022, up from $1,126 billion in 2021, according to the General Organisation for Export and Import Control.