Gold prices in Egypt extended their rally for a third consecutive week, driven overwhelmingly by a surge in international bullion and a weaker Egyptian pound rather than a rush of domestic buying.
The price of 21-karat gold, Egypt’s most widely traded grade, gained 5.8% over the week, rising from about EGP 6,250 per gram and touching a weekly high of EGP 6,630, according to Gold Bullion. The advance took local prices to their highest level in 11 weeks.
The biggest force came from abroad. International spot gold gained more than 5% during the week, reaching $4,631.99 an ounce on Friday, its highest since mid-May. The rally was supported by a weaker dollar, softer US economic data and diminishing expectations of further Federal Reserve rate increases.
The move accelerated after the US Treasury said it would double the size of buybacks of certain 10- to 30-year government securities to at least $4 billion per operation. Long-term Treasury yields initially fell and the dollar weakened sharply, helping gold surge more than 3% on Wednesday. The intervention subsequently fuelled investor concerns that attempts to contain long-term borrowing costs could shift some of the adjustment towards a weaker dollar, strengthening demand for gold as an alternative store of value.
For Egyptian buyers, the global rally was amplified by the exchange rate. The pound weakened during the week, with the Central Bank of Egypt reporting an average market rate of about EGP 50.83-50.93 to the dollar on August 20.
Because Egyptian bullion largely reflects international gold converted into pounds, the combination of a more than 5% global gold rally and a weaker local currency implied an even larger increase in theoretical Egyptian bullion values than the 5.8% recorded locally.
That gap is important.
Gold Bullion said Egyptian prices traded below estimated fair value for much of the week as physical demand remained relatively subdued and holders increasingly sold existing gold to lock in gains, adding supply to the domestic market.
In other words, Egyptian consumers did not drive the rally through aggressive buying; increased resale activity actually restrained it.
The immediate direction of Egyptian gold will therefore depend heavily on two external variables: international bullion and the pound-dollar exchange rate. Further gains in global gold accompanied by renewed pressure on the pound would feed quickly into domestic prices. Continued household selling, however, could keep Egyptian gold below the levels implied by international parity.
The latest rally is therefore less an Egyptian gold rush than a case of global repricing transmitted through the exchange rate — with domestic sellers absorbing part of the shock.
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