Gold prices are seeing an unprecedented surge in Egypt, with a gram of 21 karat gold increasing to  LE3,220 from LE1760 a year ago , and 18 karat gold  surging to LE2,760 cimpared to LE1508 last January. The price of a gold pound, or eight grams of raw gold without manufacturing, tax, or stamp costs, has jumped from LE14,400 to  LE25,760.

Hani Milad, head of the Gold Division at the Federation of Chambers of Commerce, attributed the hike in gold prices to the global political and economic turmoil, the ongoing wars, and the announcement by the US central bank the Federal Reserve that it would halt rises in interest rates with plans to reduce them three times in 2024.

The latter factor alone raises the possibility of a decline in the dollar’s value, he said.

“There is an inverse relationship between the price of the dollar and the price of gold in the global market. As a result, a potential decrease in the dollar’s value will mean that gold prices are likely to rise,” Milad told the Weekly.

“Overseas investors, who previously invested by buying dollars during periods when interest rates were high and keeping them in the banks, might now opt to sell their dollars due to the expected drop in interest rates and instead invest in gold.”

On the domestic front, the price of gold is influenced by the dynamics of supply and demand, especially as many people view gold as a safe haven amid the decline in the local currency’s value.

Nagi Farag, an advisor to the Minister of Supply, told the media that the surge in gold prices in Egypt was unjustified and attributed it to a rapid surge in demand.

One gold trader who preferred to withhold his name said that one of the factors leading to the rise in gold prices was the correlation between gold prices and dollar prices in the parallel market, where the dollar has now reached LE55.

The trader, whose shop is located in Midan Al-Gamea, a Heliopolis neighbourhood famous for its gold stores, said 70 per cent of his sales are comprised of raw gold, specifically gold bullion and gold pounds. Following closely in demand is used gold, favoured for its lower price compared to newly crafted gold.

The escalation in gold prices has impacted the manufacturing cost per gram, as this rises in tandem with the price of raw gold. According to Mina, a gold trader in the same area, the manufacturing cost for a gram of new gold produced by Egyptian companies ranges from LE250 to LE350, while the same cost for a gram of used gold ranges from LE50 to LE70.

Regarding the purchase of used gold and non-manufactured gold, Milad cautioned against buying gold that is not stamped and does not have appropriate tax and other documentation, especially on social media.

“Purchasers might unknowingly buy gold that does not meet the required standards or, worse, might be stolen. In the absence of proper documentation, returns become problematic, particularly considering the high price of gold.”

Last week, many Egyptian banks introduced savings certificates offering an interest rate of 27 per cent, prompting many people to weigh the pros and cons of this investment against other options, notably gold.

One woman working in the used gold trade said that on 4 January last year the cost of one gram of 21 karat gold was LE1,660. At that time, savings certificate offering interest rates of 25 per cent were available. On 4 January this year, the price of one gram of 21 karat gold had risen to LE3,200, while new savings certificates offering a 27 per cent return were issued.

If someone had invested LE100,000 in these certificates in January 2023, their value would have grown to LE125,000 upon maturity. Alternatively, if the same amount had been invested in gold at that time, it could have purchased 60 grams. If these were sold today, their value would be LE190,000.

Even after subtracting the returns from the savings certificates, there would still be a surplus of LE65,000 in favour of gold.

However, when it comes to investment choices, some people lean towards savings certificates to ensure a consistent monthly return. Laila, who is nearing the end of her government service in a month’s time, plans to use her end-of-service bonus of LE250,000 to purchase savings certificates that will secure her a monthly income in addition to the pension she receives.

Milad said that no one could have expected the magnitude of the rise in gold prices, with anyone buying gold in January 2023 seeing the value of their investment double over the space of a year.

Gold merchants suggest that Egyptian expats send gold back to their families at home instead of money, allowing them to sell the gold and receive cash. This would also impact the price of the dollar in the parallel market and contribute to lowering gold prices.

* A version of this article appears in print in the 11 January, 2024 edition of Al-Ahram Weekly