For the past year local gold prices have been pegged to the parallel market dollar rate, reaching unprecedented heights in Egyptian pounds, hitting around LE4,000 per gram in February on the back of demand as people attempted to maintain the value of their savings. A gram then fell to LE2,700, reflecting falls in the parallel price of the dollar on the black market. The Central Bank of Egypt announcement that it was leaving the exchange rate to be determined by market forces subsequently saw the price rally to LE3,200 per gram of 21 karat gold.
While Hani Milad, head of the Gold and Jewellery Division at the Federation of Chamber of Commerce, told Al-Ahram Weekly that gold price fluctuations are likely to stabilise alongside the dollar exchange rate, he explained that the price of gold is not solely dependent on the dollar exchange rate, but that other factors, such as global supply and demand, play a role.
According to Milad, expectations that the US Federal Reserve will reduce interest rates on US bonds could encourage many to invest in gold, increasing demand and raising prices globally. The global price of gold reached $2,150 per ounce last Thursday compared to $2,028 the week before.
The price of gold is also affected by geopolitical factors. It has risen due to the Gaza war as tensions in the Middle East prompted investors to look for a safe haven. Despite this, Milad does not foresee sharp fluctuations continuing and expects interest to shift to buying jewellery after focusing on buying alloys and coins in the recent period.
Mervat Abul-Arab, the owner of a Facebook group for selling used gold, says the demand for gold is high even after the announcement of the liberalisation of the currency exchange market.
Abul-Arab’s group continues to be flooded with requests to buy with few, if any, offers to sell. Although many gold shop owners participate in the group, they are not currently offering gold for sale.
Even following recent price increases people remain confident in their decisions to buy though Abul-Arab believes they should delay any transactions until the exchange rate stabilises completely.
Price increases might be a result of seasonal factors. According to Abul-Arab, gold sales increase during Ramadan because many Egyptians set wedding dates immediately after the holy month so there is increased demand for shabka (the gold gift for the bride) and wedding rings. Gold purchases also triple on Mother’s Day, which Egypt marks on 21 March.
One gold shop owner confirmed that demand was high immediately following the floatation but has subsequently cooled. Having experienced multiple floatations over 25 years, he noted that gold prices tend to increase significantly in the immediate aftermath but says it is still too early to determine the impact of the latest changes in the dollar exchange rate on gold prices. The situation will become clearer after a week has passed.
He added that the price of gold depends on the availability of dollars for merchants to import at the official price. If access to hard currency is limited to importers of essential goods, gold importers will once again resort to the parallel market to access their needs.
* A version of this article appears in print in the 14 March, 2024 edition of Al-Ahram Weekly
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