The World Gold Council (WGC) said in early August that gold bar and coin investment in the Middle East had reached a 10-year high of 32 tons year-on-year during the second quarter of 2023, with the major part of this demand coming from Egypt and Iran.

Although Egypt suffered an eight per cent drop in demand for gold jewellery during the same quarter when compared to its level a year earlier, the demand for gold bars and coins more than tripled to 10.4 tons in the second quarter, up from 8.2 tons in the first quarter of the year and 3.3 tons in the second quarter of 2022.

In the first half of 2023, demand stood at 19 tons, equivalent to the demand for 2022 as a whole. 

The steep rise in inflation combined with successive devaluations of the local currency have made gold a safe haven for investment, the WGC said.

Egypt’s annual headline inflation surged to an all-time high of 36.8 per cent in June this year, compared to 34.8 per cent in May, as reported by the Central Agency for Public Mobilisation and Statistics (CAPMAS).

Experts believe that the local rush for gold stems from the fact that it is seen as the safest investment with the best returns when compared to alternatives like real estate and investment certificates.

People tend to buy gold during periods of inflation as they turn to safe havens like gold and real estate and savings certificates in times of uncertainty, according to financial markets expert Ahmed Moati.

He said that gold had emerged as an optimal option during the second quarter of the year due to its record-breaking surge in prices.

“The price of a gram of the 24-carat gold used in gold bars stood at LE1,960 prior to the Russian-Ukrainian crisis, but it has soared to close to LE3,000 in recent days,” Moati said, representing a 50 per cent surge in prices.

When compared to the 22 per cent-yield certificates of deposit and losses incurred from their premature redemption, along with the large amount of capital required to invest in real estate, gold emerges as the best investment option.  

In January, a gram of 21-carat gold, the most common type in the local market, stood at LE1,650. In March, it had reached LE2,100 before soaring to LE2,800 in early May. It is currently selling for LE2,160.

“Gold traders have made good use of the situation by offering bars weighing just one gram, whereas previously the minimum weight they used to sell was 10 grams,” Moati said.

He said that when the statistics for the third quarter of the year are released, they will reveal a slowdown in purchasing compared to the second quarter, however.

This will be due to market saturation, with many of those wishing to do so having already bought gold. The elimination of customs duties on gold brought in from abroad has also decreased demand for local purchases.

Travellers coming to Egypt have brought in roughly 600 kg of gold from overseas following May’s decree that exempted gold from customs duties and additional fees, except for value-added tax (VAT), said advisor to the Minister of Supply and Internal Trade Nagi Farag.

Farag said that one month after the decree local prices for gold had dropped from LE2,800 to LE2,130 per gram. 

“Earlier, there was a LE700 gap between the price of a gram in Egypt and in the Arab countries, as Egypt was seeing higher demand,” Farag said, adding that the local market has now stabilised.

However, Moati said the current local price for gold was still distorted. “There is still a difference in the local market price for gold compared to the international price, as the local one is still higher by LE350 per gram,” he said.

He added that the 600 kg of foreign gold brought in by travellers to Egypt was not included in the WGC’s figures. If the Egyptian pound sees a further devaluation in the coming months, gold prices will still not rise to the previous record levels based on international expectations, he said.

* A version of this article appears in print in the 10 August, 2023 edition of Al-Ahram Weekly