Gold never ceased to be the safest investment in times of crisis, yet as Sherine Nasr finds out, it too is feeling the pinch of recession When it comes to gold, investing in the precious metal is the way to go. Gold never ceased to provide investors with a safe haven, particularly in times of turbulence, while keeping in store some ill fortunes for those working in the age-old profession. According to World Gold Council (WGC) statistics, the most striking trend across the year was the reawakening of investor interest in the possession of gold. Demand for bars and coins rose by 87 per cent globally. "Gold has repeatedly proven its supremacy as a store of value and portfolio diversifier and this has struck a chord with nervous investors," said WGC CEO Aram Shishmanian, adding that while current market conditions have impacted consumer spending on jewellery, purchasers in many of the key gold markets understand the metal's intrinsic investment value and therefore continue to buy. In Egypt, however, a full year of prosperous business is now followed by an untimely slowdown, which has prevailed over the past few weeks. Many gold traders fear the situation will persist and even worsen. "My business has been down by more than 50 per cent during the past month. Demand for jewellery is marginal. This was not the case a few months ago when business was in full scale," said Nabil Nemr, a wholesale and retail trader, who added that the main factors are high gold prices, which have persisted for a month now, and the state of uncertainty among consumers due to the difficult economic situation. Clearly, the global recession has started to take its toll on the gold market too. The prevailing atmosphere in Sagha, the main gold market in Old Cairo, contradicts sharply with the situation during the last quarter of 2008 when business was flourishing rapidly. According to the WGC's report on that period, the surge in investment demand was widespread across the region with Egypt recording a remarkable increase of 67 per cent, by which it outran the United Arab Emirates by 38 per cent, and followed Saudi Arabia, which registered a phenomenal increase of 300 per cent. "Around 90 per cent of total consumer off- take in the region is in the form of jewellery. Net retail investment experienced a strong growth estimated at 139 per cent," indicated the report, adding that the total gold demand in the Middle East in the fourth quarter of 2008 was up by one per cent compared to levels during the same period the previous year. Further, the report also underlined that while annual figures reflected strong growth in investment demand, Egypt was the only country in the region to record positive growth in jewellery consumption as demand rose by 12 percent, compared to minus four per cent in Saudi Arabia and the UAE, and minus 13 per cent in other Gulf countries. "In Egypt, demand during the last quarter of the year was particularly strong with the help of lower and more stable gold prices during that time," said Samah Nabil, WGC manager for Egypt, who added that net retail investment was up by 38 per cent. "However, demand for gold coins and low cost production 21 karat gold jewellery such as bangles and chains absorbed the benefits of the excess demand." According to Nemr, high gold prices are holding consumers back. Nevertheless, this is not the only reason for the slowdown. In fact, business was peaking all through last year when the gold price reached its highest in June and July, reaching LE158 per 21 karat gram. An extra push was given to trade movement when gold prices hovered around LE128 per 21 karat gram by the end of the year and stayed there before it picked up again to reach LE146 which put the market in a state of anticipation. However, Nabil believes that it is unfair to compare peak seasons in November and December when the Islamic feast and Christmas are due with the first two months of the year. "January and February are not peak seasons and it is normal to see demand slowing down a little during these months," she said, adding that the market will pick up again as it always has. According to Nemr, some serious repercussions will result in a slower gold market. "While big tycoons can survive, small manufacturers are hit the worst when the normal cycle of the market drops for any reason. They can very easily go out of business," said Nemr, who added that there are peculiar features to the Egyptian gold market, which make it all the more difficult for small entities to survive. One of those is the distortion in the sales tax imposed on gold since 1993 and which is believed by most gold traders and manufacturers to have done a great deal of harm to the market. "Legislators forgot one simple fact about the nature of gold. It is not perishable, nor is it disposable like any other commodity. Therefore, imposing a tax on the same commodity over and over again is a distortion that should be corrected," said Salah Arsani, a gold manufacturer.
