Gold prices in Egypt have gone through the roof, soaring to LE630 per gram of 21-carat gold and LE550 per gram of 18-carat gold this week, compared to an average of LE230 and LE200, respectively, in early January. Wasfi Wassef, head of the Jewellery Division at the Egyptian Federation of Chambers of Commerce, attributed the hike to two main reasons, the first of which was the rise in international gold prices. Global gold prices increased by 14 per cent to $1,273 an ounce (28.35 grams) on Thursday, compared to $1,116 in January, according to the World Gold Council, an industry group. However, Wassef also said that the increase in global prices was not the main driver for the increases in Egypt, where local prices have soared disproportionately. The main reason behind the hikes, Wassef said, was the decline in the value of the Egyptian pound against the dollar. Egypt has been grappling with a foreign currency shortage after political instability in recent years strained its foreign currency earnings. The crisis became graver when tourism receipts fell sharply after the downing of a Russian airliner over Sinai last year. With the dearth of foreign currency, a black or parallel market has thrived, selling dollars at more than 90 per cent more than their official rate. The black market has spiralled out of control recently as speculation of another devaluation of the pound has been rife. Egypt is moving closer to sealing a $12 billion loan from the International Monetary Fund (IMF), and it is widely expected to devalue the pound as part of the conditions for accessing the loan. Analysts estimate the pound could lose anything between 35 to 45 per cent of its value, either in one go or in stages. The pound has already lost 14 per cent of its value against the dollar this year and is now officially trading at LE8.88 to the dollar. The new devaluation comes as part of an economic reform plan to revive the economy. Reports said on Sunday that the dollar had strengthened on the black market and was selling at LE17.50, with other reports putting the rate at LE18. Wassef said that the shortage of foreign currency and the inability of traders to obtain dollars from banks had prompted them to buy dollars from the parallel market. Fluctuations in the exchange rate had fed into local gold prices, he said, and concerns are rising that gold prices will go higher before the end of this year in tandem with the impending devaluation of the pound. Wassef said that if the devaluation pushed rates on the parallel market higher, then it would lead to further increases in gold prices. “The main factor that will stabilise gold prices is the stability of the exchange rate and the availability of dollars,” Wassef told the Weekly. The soaring prices of the precious metal on the local market have discouraged people from buying it and therefore have led to stagnation. “I am no longer acquiring new merchandise as no one is buying it,” one gold trader in Cairo told the Weekly. Wassef said that buying and selling gold had dwindled during the year and had now reached “zero per cent”. He said that demand was already weak at the beginning of the year, and when prices went up over recent months the demand disappeared. Gold prices have witnessed several fluctuations over the past five years, the harshest of which was this year. In only 10 months, the price of gold increased by 102 per cent. In December last year, global gold prices plunged by 43 per cent to reach $1,056 an ounce compared to $1,880 an ounce in 2011. The drop helped demand in Egypt to pick up by the beginning of 2016, when a gram of 21-carat gold was selling at LE230. However, with the swift hikes in gold prices this year, selling and buying have slumped. Meanwhile, amid the current economic crisis and the weakening local currency, some customers have turned to gold as a secure investment. As a result there has been a surge in demand for gold bars, with one Cairo trader saying that he had seen an increase in the sales of raw gold. Wassef said that the demand for gold bars was limited, however, as “people don't have the liquidity and they are too consumed in making ends meet.” He said that gold traders were in a “dire situation” and were struggling to keep their businesses open, adding that 85 per cent of gold workshops had shut down because of market stagnation. “We can do nothing about it, as market stability is pegged to solving the dollar crisis,” Wassef commented.
