Egypt's Gold Market Chokes Under Severe Liquidity Shortage
Egypt's gold market is facing a severe liquidity shortage, causing a bottleneck in trading activity. The crisis has resulted from growing numbers of consumers seeking to sell gold bars and old jewellery, including stone-set pieces, while demand for new purchases remains extremely weak.
According to Marsad Al Dahab, the current crisis does not reflect a shortage of gold in the market, but rather a severe shortage of cash needed to absorb the quantities being offered for resale. Demand from jewellery retailers and consumer purchases have slowed down significantly, reducing dealers' ability to purchase additional quantities.
The influx of gold offered by the public has drained dealers' cash reserves, with some market participants even accepting an implied US dollar exchange rate below the local rate used to price gold. This is contributing to a persistent price gap and widening the discount on Egyptian gold relative to its implied value based on international prices and the exchange rate.
The liquidity crisis coincided with the price of 21-karat gold reaching EGP 6,380 per gram at the end of the week, compared to an implied value of approximately EGP 6,440. The discount on 21-karat gold widened to around EGP 60 per gram, compared to approximately EGP 20 at the beginning of the week.