The government’s decision to exempt gold brought in with those entering Egypt from abroad from customs duties for a period of six months will bring down its prices, according to people in the local gold market. 

Amr Al-Maghrabi, a member of the Board of Directors of the Gold Division at the Cairo Chamber of Commerce, said the exemption will increase supply on the local market where the price of gold is now considerably higher than it is abroad.

“When those coming from abroad sell gold in the Egyptian market, they will make a profit. At the same time, they will be narrowing the gap between supply and demand. It was the rise in demand compared to supply that drove up gold prices in the first place,” he said.

Al-Maghrabi does not believe the rising price of gold is related to the exchange rate between the Egyptian pound and the dollar. Instead, it is because gold imports stopped when the banks stopped providing the hard currency needed to import it. 

Since the government announced the customs exemption last week, the price of 21-karat gold had dropped from LE2,550 to LE2,400 per gram by the end of trading on Wednesday, according to the iSagha website. 

Until this point, the price of 21-karat gold had climbed from LE1,675 to LE2,560, or more than 50 per cent, since the beginning of the year.

According to Al-Maghrabi, in 2016, supply exceeded demand, causing local gold prices to plummet. The government exported gold in order to bring in hard currency and then used it to buy from people who were rushing to sell their holdings out of fears prices would go down further.

Hani Milad, head of the Gold Division at the Cairo Chamber of Commerce, said that “as the price declines, it won’t take long for supply to meet demand.”

Nadi Naguib, general secretary of the Gold Division at the Cairo Chamber of Commerce, said that while the government’s decision would spur an increase in supply in the domestic gold market, it might take some time for that increase to be felt. 

It is difficult to anticipate how much gold will come into the country as a result of customs exemptions, he said. 

Egyptians at home have been reluctant to sell gold while prices were climbing, and this contributed to lowering supply, he added. But the main cause of the low supply and rising prices was the impediment to importing gold since the banks had stopped financing it in March. 

“This meant that anyone wanting to import gold had to get hard currency from the black market. Gold traders started to calculate the dollar cost on the basis of the black-market price.” 

The interruption in gold imports had made the lack of supply with respect to demand the main factor in determining the price of gold, he said.

In a related development, the Egyptian Stock Exchange (EGX) has begun to post regularly updated per gram prices of 24-karat gold on its website. The updates will be provided by firms specialising in precious metals trading. 

The first prices to be posted on EGX trading screens were LE2,687.17 (about $87) and LE2,744.34 under “buy/bid” and “sell/ask” headings, respectively.

EGX Chairman Rami Al-Dokanyi said in a statement on the exchange’s website that the prices were “instant recommended prices for the best buy/bid and sell/ask prices” for 24-karat gold. 

In tandem with the EGX’s new gold listing, Egypt has launched its first gold investment fund and begun to accept subscriptions. According to the EGX website, the fund offers an alternative to purchasing gold outright. 

Investors subscribe to certificates that generate the funds used to purchase gold, and the fund earns returns for investors based on the movement in the price of gold in the market. 

The fund is being managed by the Azimut Egypt asset management firm, and subscription will be open to all investors, according to a statement. Subscription to the “az-Gold” fund opened at LE10 ($0.3) per unit, according to the Financial Regulatory Authority (FRA), and certificates will be available at post offices. 

Investors can redeem their certificates in either cash or gold, the Azimut website stated. 

“The EGX, in full coordination with the FRA, is working on developing a special trading system to enable the purchase and redemption of fund policies through brokerage firms, which helps in creating an active secondary market for fund policies,” Al-Dokani said on the EGX website. 

Establishing precious metals investment funds, especially for gold, will increase transparency and market efficiency, as they will provide investors with an alternative to directly buying gold products, he said. It was a regulated gold investment product that they could invest their savings in. 

The fund would “diminish exposure to the additional costs and risks associated with directly buying gold products and retaining them, which maximises returns in the long term,” he concluded.

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* A version of this article appears in print in the 18 May, 2023 edition of Al-Ahram Weekly