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Al-Ahram Weekly 14 - 20 October 1999 Issue No. 451 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 14 - 20 October 1999 Issue No. 451
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Books Features Profile Travel Living Sports People Time Out Chronicles Cartoons Letters Gold's changing fortunes
By Sherine NasrFor the last two weeks, the Egyptian gold market has been stagnant due to the quick and unexpected rise in gold prices in the international market.
A major gold exporter, who asked to remain anonymous, said, "Since 1997 gold prices have continued to drop until they recorded their lowest point last August when the ounce [28.35 grams] was sold for $255. Now, the price has suddenly jumped to $340 in less than two days." The immediate result in the local market was that the price of 21 carat gold increased by almost eight pounds, selling for LE34 instead of LE26.
Gold prices started to pick up rapidly after a meeting on 27 September of the central banks of the G-10 countries (the major 10 industrial countries in Europe, including Germany, England, France and Switzerland). The bankers agreed to limit their gold sales for the next five years. "They have decided to sell only 2,000 tons of their reserves over the next five years," said Samah Nabil, a representative of the World Gold Council. These countries hold 47 per cent of the international gold reserve, he added.
In the meantime, the United States, Japan and the International Monetary Fund (IMF), which hold 37 per cent of the world's gold reserve, announced they would abstain from selling their gold reserves for an unspecified period. These decisions by the countries owning 84 per cent of the world's gold reserve have made the price soar by almost $90 per ounce in less than 24 hours. (The rest of the world's gold is held as a cover by several other nations with large gold reserves.)
The sudden rise in gold prices is considered by experts as a positive sign which will revive the once rapidly deteriorating trade and industry. "The previous price [$255 per ounce] hardly reflected the actual value of this precious metal," said Nabil.
The rapid drop in gold prices started in 1997 when several European countries announced they would sell big amounts of their gold reserves. The first to sell was Belgium, followed by Australia, Germany and then Switzerland. "At first the ounce was sold for $310, then as the gold supply increased, the price continued to drop," said Nabil.
More amounts of gold were put on sale when the euro was launched, and the EU countries were encouraged to keep only 10 to 15 per cent of their gold reserves as a cover, instead of the previous 25 per cent. "In other words, gold was no longer considered a real cover but rather a commodity for local use, and more EU countries started to sell bigger amounts of their reserve," the Egyptian gold exporter explained.
The deteriorating prices had a very negative impact on the gold trade and the industry. At least 44 per cent of the major gold mines worldwide were compelled to shut down after suffering big losses. "The net cost of extracting gold was estimated at $280 per ounce while the international selling price for the metal was $25 less," said the anonymous source.
In Egypt a project to operate a gold mine south of Aswan, scheduled to start last January, was never launched because the Swiss company undertaking the project withdrew due to the slump in international gold prices.
Contrary to the enthusiasm of gold experts for higher prices, Egyptian local merchants and manufacturers are bewildered by the sudden price rise which has badly hurt their business.
"The local market has come to a standstill. All dealings have stopped. Now we are anxiously anticipating what the next few weeks will bring," said Antoune Rizk, who owns a major factory for gold products. Rizk said his business normally produces 100kg of gold items per week. "Our production dropped to less than 20kg because there is not enough gold supply in the local market," he complained.
Gold merchants are afraid to sell any amount of gold in the local market because of the daily price fluctuations, according to Rizk. They also are not importing more gold from the world market at the current higher price for fear prices might drop again. "In both cases, they would make big losses," said Rizk.
The worst hit have been the businessmen who agreed to import big amounts of gold at a cost of LE26,000 per kg, took the money from local merchants, and then had to buy the same amount at the higher international price. "They had to bear the difference of LE8,000 per kg, and their loss is estimated in the hundreds of thousands," Rizk said.
"It is a gamble to buy or sell gold for the time being. Unfortunately, it is hard to say when the local market will stabilise. Until it does, all dealings will be kept to a minimum," Rizk concluded.
