Egyptians buy and sell gold to stay afloat
In the wood-paneled shop in Cairo’s famous Khan el-Khalili market, the price of gold was falling rapidly and Rania Hussein felt the future slipping through her fingers.
She and her mother watched as the gold dealer weighed the necklace and three bracelets they had brought; jewelry that Mrs. Hussein had bought as a gift for her mother five years ago, but now had to sell. Her brother was getting married, an expensive undertaking even in normal times, but the economic crisis and rising inflation that have gripped Egypt for more than two years left the family no choice.
Years of reckless spending and economic mismanagement came to a head in 2022, when Russia’s invasion of Ukraine plunged Egypt into a financial crisis. The war in Gaza has only exacerbated the pain.
The crisis has raised the price of eggs at the supermarket, as well as the new furniture her brother traditionally has to buy for the marital home, Ms Hussein said. It also shuttered her clothing design business and wiped out three-quarters of the value of her brother’s accountant salary.
And, as a strange side effect, it turned the normally quiet gold jewelry and precious metals shops of Khan el-Khalili upside down, with their old-fashioned signs with scrolled letters and Koran recitations drifting incessantly from dusty loudspeakers. Over the past two years, gold-buying speculators have entered the market as a crashing Egyptian currency boosted demand for gold as a safe haven after the unrest.
While the metal’s price has generally risen despite the occasional setback, its value has ebbed and flowed along with demand depending on the vagaries of daily economic news, a volatility that has baffled consumers and traders alike .
On the day Ms. Hussein visited the market, the price of gold was falling rapidly following news that Egypt may have found a lifeline to save the country from what until then seemed like impending financial ruin. The country signed a $35 billion deal late last month for the United Arab Emirates to develop a new city and tourist destination on Egypt’s Mediterranean coast.
Within hours of the deal’s announcement, the Egyptian pound strengthened, the value of the dollar fell on the black market and the price of gold fell with it.
If the Emirati funds materialize as promised, analysts say, the money, along with a new bailout deal with the International Monetary Fund expected within weeks, will help Egypt stabilize its economy. It will help the country avoid debt default, pay for a backlog of needed imports and undermine the dollar black market created by a shortage of foreign currency.
But for the Egyptians, the damage has already been done.
As they watched the value of their salaries and savings evaporate over the past two years, the poor cut back on food, the middle class withdrew their children from good schools for cheaper or free schools, and even the better off went without vacations and meals. out. Millions of people fell into poverty.
“It is not guaranteed that the gold price will rise, and I am afraid it will fall again,” Ms Hussein said of the falling gold price as she sat in the market shop and explained why she had decided to sell. . “And the price of furniture should come down, but we have yet to see that.”
She sighed and added, “It’s all a joke.”
The turbulence has turned many people into reluctant speculators, their lives dominated by uncertainty and rumors. Checking the rate of the dollar on the black market has become as common as checking the weather forecast.
On paper, Ms Hussein would collect more for the jewelery than what she paid for it five years ago, but two years of rampant inflation and a falling pound would likely wipe out any gains. The price of many goods is now determined by the value of the dollar on the black market, which rose to around 70 pounds per dollar last month, up from around 16 pounds before the crisis. “Even vegetable sellers are worried about the dollar price,” said Ms. Hussein’s mother, Tamrihan Abdelhadi. “Everyone prices in dollars.”
The family had already sold one of Ms. Abdelhadi’s gold rings to pay for the three new rings that the groom’s family traditionally gives to the Egyptian bride, and there was still the couple’s apartment to think about.
“It’s so expensive, the living room set for example,” Ms. Hussein said. “This will not be enough for that, but it will go to the fund.”
Since early 2022, a crippling foreign currency shortage caused by Russia’s invasion of Ukraine and Egypt’s heavy debt burden has pushed inflation to record highs and plunged the value of the local currency to record lows.
The war in Gaza has worsened the crisis, threatening tourism, a key source of foreign exchange, and halving Egypt’s dollar revenues from the Suez Canal as the Iran-backed Houthi militia has attacked ships in the Red Sea.
Egypt imports oil, wheat and many other goods for which it must pay in dollars. That has made the US currency both indispensable and scarce, creating a murky black market in which the value of the dollar far exceeds the government’s artificially set exchange rate of about 31 pounds to the dollar.
Looking for safe financial havens, Egyptians with savings began pouring them into gold, real estate and cars – anything they thought would hold its value better than the sinking Egyptian pound.
Traditionally, Egyptians have bought gold jewelry as a long-term savings strategy, but speculators have now turned to coins and ingots to make quick profits, said Saeed Imbaby, the founder of iSagha, a gold trading platform.
Ask for gold doubled and then some, raising the price. The market became so excited that in November the government announced it was working with a financial technology company to install ATMs that handing out gold bars instead of cash.
Before the value of the pound began to fall, “I never thought about gold, not even jewelry,” said Nermin Nizar, 52, a translator in Cairo. But “in this panic, I needed everything I could get to protect the value of my money.”
She put her savings into a single gold coin in September. Its value in pounds has risen by 30 percent, although inflation would erode the purchasing power of its profits if it were to sell now.
The speculation wreaked havoc on the Khan el-Khalili gold market as shop owners faced an ever-fluctuating price for the raw material they bought to make rings, necklaces and earrings. Many stopped selling altogether.
“I can’t work because I don’t have a stable price to sell at,” said Amir Salah, the owner of a small gold jewelry store. “I don’t even understand much of what’s going on.”
Now a new uncertainty is gripping the market, albeit with a hint of optimism. The Emirates, a longtime political ally and financial patron of Egyptian President Abdel Fattah el-Sisi, has already started transferring billions of dollars to Egypt for the development deal, el-Sisi said on Wednesday. The president, who had lost popular support until the start of the war in Gaza, appears to have been given a reprieve.
“It’s reassuring,” said Nasser Badawi, the owner of the Bullion Trading Center in Khan el-Khalili, which sells small solid gold lollipops and baby bottles as gifts for newborns, along with plain blocks that he said were popular investments last year become. . “Anything that makes me money and helps me through this crisis, why not?”
Preventing the economy of the Middle East’s most populous country from collapsing has also taken on new urgency for Egypt’s Western partners during the war in Gaza. The IMF has announced it will increase a previously agreed loan of $3 billion within weeksThe amount is expected to be around $8 billion, according to five diplomats in Cairo briefed on the talks.
But few details about the Emirates deal were available. The funds would avert bankruptcy, analysts said, but Egypt risked a new crisis if it did not implement meaningful reforms to cut spending, attract more private investment, produce more exports and end the military’s dominance over the economy. Reduce.
Before the deal, growing economic pressures had forced the government to make a number of changes, including freezing some costly megaprojects ordered by El-Sisi that had piled up debt, including a flashy new capital in the desert.
But Egypt now has fewer incentives to change course.
The deal is “a game changer,” said Tarek Tawfik, chairman of the Cairo Poultry Group and president of the Egyptian American Chamber of Commerce. “The question is: how will the money be used?”