It is uncertain how skyrocketing gold prices will affect the local market. Rehab Sayed Ahmed investigates Gold prices have gone through the ceiling by striking an all-time high of $980 per ounce this week, and smashing a 28-year record. Experts attribute this to oil prices breaching the $100 per barrel mark, a weak US dollar, political instability in Pakistan following the assassination of the country's opposition leader Benazir Bhutto, as well as cold weather which has raised demand for heating fuel. "Each market reacts to news as it happens, and gold is always trading, wherever the sun shines as the earth turns," explained Hani Milad, secretary-general of the Jewellery Division at the Egyptian Association of Chamber of Commerce. "Prices are set and regularly re-set by the ever-changing supply and demand, input by investors, central banks, governments, miners, jewellers, dealers, and others who trade in gold almost daily." Although gold as money is not a part of daily life, every major nation holds gold as a fiscal insurance policy. The value of gold during the first trading week of 2008 was $866.90 per ounce, after rising by 30 per cent last year to reach about $630 per ounce. Two years ago, gold was selling for less than $550 an ounce and cost $350 per ounce five years ago. The highest record for gold in recent history was in 1980 when it cost $850 an ounce, after investors rushed to buy the precious metal in response to high inflation sparked by soaring oil prices amid the Iranian Revolution. Naturally, Egypt's gold market has also witnessed a boom. The price of one gramme of 21 Karat gold reached LE135; 24 Karat gold rose to LE154.28; 18 Karat is selling for LE115.71 per gramme; while the price of gold coins has climbed to LE1,064 per unit . This upward spiral is not good news for retailers, as noted by jeweller Mina Michael. Michael cautioned that soaring prices could adversely affect the cost of small jewellery such as rings, bracelets and necklaces. "We have witnessed a significant decline in customers," he complained, and further price hikes could damage the business further since gold gifts would no longer be within the purchasing power of middle class customers. Another jeweller, Amr El-Sayed Hussein, explained that the only customers they see these days are couples preparing for marriage. "Even then, the grooms do not buy as many gifts for their brides because of budget concerns," stated Hussein, adding that sales have dropped off since ordinary customers purchase very little now. On the other hand, an online published research paper by the US economist Janson Hommel stresses that the rise in gold prices will benefit the economy. "The years of Ronald Reagan, 1980 to 1988, were prosperous years," Hommel argued. "Prosperity followed after the gold price rose to $850 in 1980." But Heba Nassar, professor of economics at Cairo University, is taking a third position. Nassar argued that gold prices do not have any significant effect on the Egyptian economy, "since gold is not a vital commodity that affects people's daily lives as do gas, oil and wheat." She feels that the value of the precious metal would only affect the elite who want to buy jewellery or invest their money. According to Mervat Saleh, general manager of the Egyptian for Gold Stamping and Weights, the Egyptian market will demand 21 Karat gold. This is because it does not charge high manufacture fees per gramme, so customers will not lose a great deal of money when reselling. "In addition, people will wait until prices are stable before they buy gold for investment purposes," Saleh added. Rafik Abbas, head of the Gold Division at the Egyptian Association of Industries, believes that Bhutto's assassination, geopolitical conflicts in the Middle East, the war in Iraq, US-Iran tensions and unstable financial markets helped drive crude prices to $100 per barrel. Oil prices were also boosted by the weakness of the US currency, which encouraged demand for dollar- priced commodities because they are cheaper for buyers using stronger currencies. Abbas further argued that investors are worried because of these unstable situations, and hence invest their money elsewhere, boosting interest in buying gold. The precious metal is also being supported by increased jewellery purchases in emerging economic powerhouses in China and India. Fears of a US recession, with no sign of descend in prices, is driving analysts to predict the price could exceed $1,200 per ounce during this year. "The gold market is worth a very large sum of money every day," asserted the Hall-Mark official, "and no one can set the price since it changes due to varying factors." These include the opening of a new gold mine, or changes in interest rates of various currencies. Since the gold market is the largest and most free in the world and it is a portable commodity, its price will not differ considerably in free markets from country to country, added Saleh. Additionally, the rise in gold prices may tempt investors to put their money in mining company stocks which prices tend to be more volatile than the metal itself. Annual gold production is around 2,000 tonnes, with South Africa being the biggest producer, while the US, Russia, Canada and Australia are also major producers. According to Heba Nassar, professor of economics at Cairo University, mining stocks have climbed along with the price of gold. "It is not a cash rich industry," Nassar explained. "Mergers and acquisitions are to be expected in international markets due to the high cost of gold mining." While the majority of consumers loathe the rise in gold cost because it is robbing them of the ability to invest in the precious metal, they eagerly anticipate a drop in prices before they can indulge themselves once more.
