Gold prices in Egypt had a positive week, boosted by major changes in the markets following the historic decisions of the Central Bank of Egypt (CBE), which altered the market conditions significantly. However, there is still uncertainty about the next step and the consequences of these decisions on the local markets, according to the Gold bullion report. The most popular 21k gold started trading on Saturday at EGP 3,270 per gram. During the past week, the local gold price increased by 10.8%, gaining EGP 355 per gram. It closed the week's trading at EGP 3,270 per gram, after opening the week's trading at EGP 2,915 per gram. Last week, the CBE announced in an emergency meeting that it raised interest rates by 600 basis points, reaching 27.25% for the overnight deposit rate, 28.25% for the overnight lending rate, and 27.75% for the main operation rate. Moreover, the CBE allowed the exchange rate to be determined by market mechanisms, which resulted in a rise in the official exchange rate in banks to record the highest level at around EGP 50.85 per dollar, with an increase of 66%. This decision lifted the exchange rate for the first time in more than 14 months, after the exchange rate of the pound against the dollar in official banks had stabilized at EGP 30.95 per dollar throughout this period. The CBE governor stated that liberalizing the exchange rate was the start of several measures that the bank would take, and that it would intervene in the exchange markets if it noticed irrational fluctuations. The National Bank of Egypt and Banque Misr also launched a new savings certificate with a decreasing interest rate of 30% over a period of 3 years. The certificate offers a return of up to 30% in the first year, 25% in the second year, and then 20% in the third year. On the other hand, it was announced that a new agreement was signed with the International Monetary Fund, according to which the value of the loan would increase to $8bn from $3bn, with the possibility of Egypt obtaining another loan worth $1.2bn from the Environmental Sustainability Fund. Moody's credit rating agency raised Egypt's outlook from negative to positive, maintaining its credit rating at Caa1. There is also news about the return of international financial institutions to invest in Egyptian government debt instruments, led by Goldman Sachs, Citibank, and Morgan Stanley. With the stability of the exchange rate, it is expected that more international institutions will resume investing in Egyptian debt instruments. The impact of these events on the local gold prices was considerably positive, due to the increase in the exchange rate, both in the parallel market and in the official banks, and thus the re-pricing of gold at the new prices in the local market. The demand for gold may not change much during the current period, as its pricing depends on the price of the dollar in the official banks, as well as the historical levels in the current global price of an ounce. However, the CBE's ongoing decision-making to control the exchange rate after the gap with the exchange rate in the parallel market has closed would push the exchange rate to gradually decrease in the coming period, especially if the CBE succeeds in providing the foreign exchange liquidity that the markets currently need. A drop in the exchange rate would cause gold prices to drop as well, so that the supply and demand factor for gold would become more influential in the local market in the coming period than its current role, especially if there is a stabilization in the exchange rate.
