A jump in gold prices in Egypt as the pound falls

Gold industry experts said its prices in Egypt had jumped to unprecedented levels as savers worried about the currency’s weakness turned to the precious metal as a safe haven for their savings and some companies resorted to to export bullion to raise scarce dollars to finance imports.
Statistics from the Gold Division of the General Federation of Egyptian Chambers of Commerce show the price of 21-carat gold surpassed 1,800 Egyptian pounds ($72.73) per gram in December, which local media cited as its highest level ever .
Prices have since fallen to £1545, but are still far from the £673.5 level a year ago, and represent a sharp rise from the $50-$51 level currently in global markets.
Egypt continues to face a shortage of foreign currency despite two major devaluations of the pound this year, with a growing gap between the local currency’s official exchange rate against the dollar and the parallel market rate.
In February, the Central Bank of Egypt mandated the use of letters of credit for most imports, causing a sharp slowdown in imports and the accumulation of goods in ports.
That prompted some importers to buy Egyptian pound bullion to export abroad as a way to obtain dollars, a step that Hani Milad, head of the gold division at the Federation of Chambers of Commerce, said had driven prices up.
One of the bankers added that he managed to exploit a loophole that exempted the first half-million dollars for each import transaction from the requirement to use documentary credit.
Milad said in a local TV interview earlier this month that he has seen a huge influx of money into the market from people outside the industry, adding that importers buy gold for export in dollars so to be able to import other goods.
The weakness of the Egyptian pound has also led to an increase in private individuals’ demand for gold bars and coins to preserve the value of their savings.
Ibrahim Hegazy, head of the marketing department at the American University in Cairo, said gold is considered a safe haven versus putting money in sterling banks and devaluing it.
The official exchange rate for the pound fell to around 24.7 to the dollar, from 18.8 to the dollar in March. It trades at around 31 pounds to the dollar on the black market.
Egypt’s central bank recently hiked interest rates, a sign it may be preparing for further currency depreciation.
Wasfi Wasef of the Federation of Egyptian Industries said if he doesn’t find anything new, the situation will remain as it is and there could be further price increases.
($1 = 24.7499 Egyptian Pounds)