The issuance of certificates with a return of 19% and 22% by banks has raised questions about how it may impact the gold market. There are concerns about whether the certificates may withdraw some liquidity from the gold market and what this means for medium and near-term gold prices. Egypt’s gold has recently experienced a negative correction after attaining a historical peak, with 21-carat gold retreating to EGP 2,160 from EGP 2,210. This decline was partly due to the offer of bank certificates, limiting the demand for gold. The National Bank of Egypt and Banque Misr both added new savings certificates after the Central Bank of Egypt’s interest rate hikes, contributing to the negative correction. Despite recent declines, gold remains an important hedge against inflation, so it is too early to say whether the move to certificates will substantially shift cash liquidity away from gold.
Islam Saeed Books
Monday, April 10, 2023 12:00 AM
With the issuance of certificates with a return of 19 and 22% in banks, some are wondering about the possibility of the impact of issuing these certificates on gold market And the possibility of withdrawing part of the liquidity directed to the gold market, as well as about the future of gold prices in the medium and near term, especially after recording prices at record levels in the past days.
Gold in Egypt entered a negative correction this week, retreating from a historical peak, and this correction came with a decline in prices to coincide with global gold prices, which recorded the highest level per ounce in a year, then fell to $2007 per ounce as a weekly closing price, as well as prices calmed down partially to offer bank certificates that were withdrawn Part of the liquidity of the gold market.
A technical report by gold bullion indicated that the tensions and uncertainty related to the local markets caused gold prices to rise to record levels during the past week, but some measures related to banks worked to calm the gold markets slightly, such as issuing certificates in more than one bank, led by government banks with a return. 19 and 22%
The technical report indicated that the price of a gram of 21 carat gold, the most common, in conjunction with the weekly closing of the market, recorded 2160 pounds per gram, down by 2.0% from last week’s opening price of 2210 pounds per gram, while gold prices during the week recorded the highest level ever at 2260 pounds per gram.
The report confirmed that the tendency of the National Bank of Egypt and Banque Misr to offer two new savings certificates after the decision to raise interest by the Central Bank of Egypt, as the return on the first certificate reached 19% with a fixed return spent monthly, and the return on the second certificate decreased by 22% and the two certificates with a term of 3 years, contributed strongly. In calming the gold market, limiting demand in part, and withdrawing some of the liquidity that was heading towards buying gold after the end of the 18% certificate.
Interest rates, after the Central Bank’s recent decision to raise the interest rate by 200 basis points on overnight deposits, reached 18.25%, and the lending interest rate increased by 19.25%, while the main interest rate reached 18.75%. This is the highest level since July 2017.
The report indicated that gold prices were affected and fell after the announcement of the new certificates, and a large part of the cash was transferred to investment in savings certificates, but the amount of decline in gold prices is weak compared to the amount of increase recorded in gold prices during the month of March by 32%, at a value of approximately 540 pounds.
The report revealed that this week witnessed profit-taking sales that pushed gold prices to a slight negative correction, but prices continued to hold largely because gold plays a major role in the markets now, as it is a hedge against inflation that exceeded 30% levels during February, and is also a safe haven against fears The change in the exchange rate, which would push inflation to rise again, and therefore the effect of the transfer of cash liquidity to savings certificates remains weak on investment in gold.
In conclusion, the recent issuance of savings certificates by Egyptian banks with high returns has caused some concern about its impact on the gold market and future gold prices. While the certificates have helped to calm the market and withdraw some liquidity, the increase in interest rates and inflation remain important factors that continue to drive investment in gold. It remains to be seen how these factors will play out in the coming weeks and months, but it is clear that gold will continue to be a major player in the Egyptian market as a hedge against inflation and a safe haven for investment.