On the back of global uncertainties including the US-China trade war, gold surged by 8% in August, and 19.4% in global stock markets since the beginning of the year, climbing by EGP 115 in the local market due to rising demand and the Central Bank of Egypt’s (CBE) decision to cut interest rates.
Ragab Hamed, CEO of Sabayik Al Kuwait, said gold is always affected by political events and economic crises as investors seek cover, noting that it gained much value recently for several factors.
He explained to Daily News Egypt that gold prices have an inverse relationship with the US dollar, as the US Federal Reserve’s approach to easing policies, including the reduction of interest rates by 0.25% led to the increase in gold prices.
He added that US President Donald Trump’s decision to impose 10% additional tariffs on new Chinese imports of EGP 300bn in September and then postponing the decision for three months, led to the dollar’s value decline to its lowest level in two years, and then China announced retaliatory tariffs on goods worth $75bn, in the latest escalation of the long-running trade dispute between the world’s two largest economies. China has also lowered its currency to an all-time low of $7, the lowest in 11 years, to boost gold and stabilise its price at $1,550/oz.
He pointed out that the trade dispute led to the rise of gold price to its highest level in six and a half years, namely April 2013, where the ounce reached $1,550, about 19.4% hike since the beginning of the year until August, as it was priced at $1,280 in January.
Hamed pointed out that the rise in global demand for gold also contributed to the price hike, as it grew to its highest level in three years during the first half (H1). Central banks rushed to increase their gold reserves to 374.1 tonnes valued at $15.7bn.
He predicted that gold prices will decline, as sharp rises are always followed by correction as a result of the sell-off by traders to make profits.
Hamed warned that the lack of transparency and clarity of the US policy with regard to the trade war will push liquidity to safe havens and high demand for the yellow metal, and will push gold towards the levels of 2011 when gold exceeded $1,900, noting that it is likely to approach $1,600 at the end of this year,
He explained that the factors that push the prices of gold and precious metals are still present, and will continue for the rest of this year at least, including the low global growth rates, soaring trade tension between China and the United States, and global geopolitical risks, in particular regarding oil tankers.
Hamed added that the world is moving to invest in gold during this period, with the deterioration of confidence in currencies and the high risk of stocks and bonds, leading to high demand for the yellow metal.
Nagy Baqy, a member of the Gold Division at the Cairo Chamber of Commerce, said that the performance of gold prices in the international markets was reflected on the local markets, where the yellow metal’s local price is determined according to its price in international stock exchanges and the dollar exchange rate in the local market.
He pointed out that the price of gold in the local market rose by EGP 115 since the beginning of the year, marking an unprecedented level in Egypt, where the price of 21k gold, the most traded on the market, scored EGP 210 per gram.
Baqy added that the rise of the dollar exchange rate in the local markets to EGP 16.65 led the price of gold to reach its record level. The highest price of gold was $1,919/oz in August 2011, but the average price of gold in Egypt at the time was EGP 270, and the dollar exchange rate recorded EGP 5.90.
He noted that gold is one of the best saving vessels and a tool to hedge losses.
If the trade war continued, gold prices on global stock markets would reach $1,700, while the local market would trade 21k gold at EGP 800, Baqy predicted.