«Gold Department»: The resolution of geopolitical conflicts leads to a decline in gold prices

Lotfi El Menyeb, Deputy Head of the Gold Department emphasizes the role of gold as a safe haven and a store of value during times of wars and economic crises. He points out that the various uses of gold, especially in preserving savings and combating inflation and the depreciation of currency, are fundamental factors in gold investment.

El Menyeb confirms that the pricing of gold in Egypt depends on specific factors, including the correlation of the gold ounce price with the US dollar in the global market and its impact on the Egyptian pound. Additionally, he mentions the mechanisms of supply and demand in the local market and the ability to compensate for the quantities sold and required in the local market from global markets, which necessitates the availability of dollars for import and procedures allowing importation.

El Menyeb emphasizes that the years 2022-2024 marked the beginning of implementing import restriction decisions to address the crisis resulting from the shortage of our foreign currency resources. This was accompanied by the outflow of short-term dollar deposits, known as “hot money,” from Egypt, in addition to the devaluation of the pound against the dollar. He notes that this period witnessed significant and intense fluctuations in gold prices.

He points out that before March 20, 2022, the prices of 21-carat gold did not reach 900 pounds per gram, but they have now exceeded 3,200 pounds per gram. This represents an increase of 2,300 pounds per gram, equivalent to 255% over a period of 22 months, a percentage that has not occurred with such intensity in contemporary history.

El Menyeb highlights that these increases have fundamental global and local reasons, in addition to the impact of wars and crises, which are major causes of disruptions in gold prices globally. He states that the escalation of the war between Russia and Ukraine is driving investors around the world to move their funds to gold, away from investing in stocks and bank deposits, fearing their depreciation. This is because gold is considered the fortress where savings can be preserved.

He explains that these factors led to an increased demand for gold and a significant rise in its price recently due to increased demand. He adds that all indications suggest that the end of the Russian-Ukrainian war is approaching, in favor of Russia, for reasons related to Ukraine’s exhaustion of many of its combat capabilities due to the lack of Western support and supplies.

El Menyeb predicts that the conclusion of investment certificates in banks this month was met with the banks issuing other certificates, which are the highest in history. This is due to the government’s desire to control those funds, amounting to billions, which, if withdrawn, would have been directed to buying gold, causing a significant increase in demand for the yellow metal, exceeding the available quantities in the Egyptian market.

He emphasizes that the banks targeting the issuance of additional certificates is a governmental direction to curb inflation in the markets, in line with the state’s decision to prohibit banks from accepting undisclosed dollars in an attempt to eliminate currency trading and the black market. Additionally, the practical implementation of Egypt’s entry into the BRICS group, where countries deal with their currencies rather than the dollar, may lead to a reduction in the value of the dollar against the pound. If this happens, it will be a factor in reducing the price of gold in the local market.