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A hike in international prices and a surge in the dollar exchange rate have pushed the price of gold up on the Egyptian market, reports Mona El-Fiqi
Over the past two weeks gold prices have soared on local markets with a gram of 21-carat gold increasing by almost nine per cent to reach LE317, while a gram of 18-carat gold posted an 8.5 per cent gain to LE271. A kilo of 21-carat gold was up from LE265,000 to LE310,000 this week.
Gold traders have attributed the increases to a jump in the international prices of gold, which gained almost five per cent per ounce over the two-week period.
Gold enjoys emotional, cultural and financial value across the generations all over the world. High demand for gold for use in jewellery, technology and as an investment by individuals as well as by banks has also helped in pushing up its price.
"Changes in politics and economics play a great role in determining the gold price. For example, gold prices reached their peak, registering $1,905 per ounce in September 2011 in the US," said Rafeek Al-Abassi, a member of the Jewellery Division at the Federation of Egyptian Chambers of Commerce (EFCC).
He said that the news can change gold prices and important political or economic announcements can lead to hikes or falls in gold prices across the world.
Political tensions in the Middle East region might be one reason for the increase in prices of gold. However, Al-Abbasi said it is strange that drops in international oil prices have not curbed gold prices since low oil prices means low mining costs for the yellow metal.
Nadi Naguib, secretary of the division at the EFCC, explained that there are other factors that influence the price of gold, including currency values, supply and demand and buying power.
"Large organisations and governments have substantial buying power and can impact the price of gold. If a government makes a large gold purchase, its demand for the product could affect the gold market immediately," he said.
China and India have been buying large quantities of gold on the international markets over the past few weeks, leading to a shortage of supply and thus a rise in prices, according to Naguib.
Moreover, some individual investors are speculating in gold and causing fluctuations in the market.
On local markets, gold prices exceed international prices because of foreign exchange issues. Naguib said that the current shortage of dollars at Egyptian banks has obliged gold traders to deal in the parallel markets where the pound is sold at LE 9.6 per dollar compared to LE7.8 per dollar in the banks, pushing gold prices to higher levels.
The difference between the gold prices in the local markets and the international prices is usually between LE2 and LE3 per gram. The gap now is around LE30 per gram.
Egypt's exports 50 to 70 kilos of gold per month, while imports are between 200 to 300 kilos, Naguib said. "The increase in imports compared to exports puts pressure on foreign currency reserves and, as there is already a shortage of these, we are heading towards a vicious circle," he added.
Abdallah Abdel-Qader, former head of the Jewellery Division, explained that the rise in the dollar exchange rate and international prices have led gold prices in Egypt to higher levels despite the current low demand. Families are currently focussing on paying educational costs rather than buying jewellery, he said.
The availability of deposit certificates bearing interest rates as high as 12.5 per cent have also shifted the focus from gold as one of the most lucrative available investments, he added.
As for Egypt's gold production, Sukari is the only mine operating at present. Located in the Eastern Desert and operated by Centamin, a global gold miner, the total gold production of Sukari was 439,000 ounces last year.
Sukari's production forecast for 2016 is 470,000 ounces, at an all-in sustaining cost of $900 per ounce. Total reserves at the mine are estimated at 7.1 million ounces of gold, while proven reserves are approximately 69.1 million ounces.
"But this does nothing for prices in the local markets. The production of the mine is not directed to the local markets, but is totally directed abroad to be sold on the international gold exchanges," Al-Abassi said.
Gold prices are largely unpredictable, but experts believe that market trends show that the current gold rally will continue over the coming weeks unless the gold kept in reserve by international traders is offered up for sale.
© Al Ahram Weekly 2016
