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Gold price soars in Egypt as local currency weakens

gold
A gold vendor polishes a golden piece inside a shop at the gold market area, as gold prices recorded an increase after the latest devaluation of the local currency in Cairo, Egypt, December 8, 2022. REUTERS/Mohamed Abd El Ghany/File Photo

The price of gold in Egypt has risen to unprecedented highs as nervous savers seek refuge from a weakening currency and some companies export bullion to raise scarce dollars to fund imports, industry experts say.

Figures from the Federation of Egyptian Chambers of Commerce’s (FEDCOC) gold division show the price of 21-carat gold surpassing 1,800 Egyptian pounds ($72.73) per gramme in December, what local media reports say is an all-time high.

Prices have since fallen to 1,545 pounds but it’s still a jump from 673.5 pounds a year earlier and a sharp premium versus the current $50-51 on international markets.

Egypt continues to face a foreign currency shortage despite two major devaluations this year, with the gap between the official rate of the Egyptian pound against the dollar and that on the black market widening.

Its central bank in February imposed a requirement for letters of credit for most imports, causing a sharp slowdown in imports and a backlog of goods in ports.

This has prompted some importers to buy bullion in Egyptian pounds in order to export abroad as a means to access dollars, a move which Hani Milad, head of the gold division at FEDCOC, said fuelled the price increase.

They have been able to use a loophole that exempts the first half million dollars per transaction of imports from requiring the letter of credit, a banker added.

“We’ve seen a huge influx of money into the market from people outside the industry…importers are buying gold to export for dollars so they can import other goods,” Milad said in a local television interview earlier this month.

The weakening Egyptian pound has also spurred demand for bullion and gold coins by individuals in order to preserve the value of their savings.

“Gold is considered a safe haven compared to putting your money in the bank in pounds and its value decreasing,” said Ibrahim Hegazy, head of the marketing department at the American University of Cairo.

The official price of the pound has weakened to about 24.7 to the dollar from 18.8 to the dollar in March. It is trading at about 31 on the black market.

Egypt’s central bank last week hiked interest rates, signalling that it might be preparing for a further weakening of the currency.

“If nothing [changes], the situation will stay the same and we might see more increases [in price],” said Wasfi Wasef of the Federation of Egyptian Industries.

($1 = 24.7499 Egyptian pounds)

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