3 minutes read | 30/4 - 7/5
30/4-7/5: Weekly precious metals prices & returns update – international gold climbs, China buys more gold, U.S interest rate hike, local gold steadies - and more.
Market Watch
Weekly Change of Local & International Gold Prices
International Gold (LBMA) ($/Oz) | 1,990.2 | 2,017.0 | 1.35% |
International Gold (LMBA) ($/g) | 64.0 | 64.8 | 1.35% |
International Gold ($/g) quoted in EGP | 1,980.2 | 2,006.9 | 1.35% |
Local Gold (LE/g) (24k) | 2,999.0 | 2,965.0 | -1.13% |
Premium/Discount* | 34.0% | 32.3% |
* Difference between the local and international traded price of gold
Weekly Change of Other Key Precious Metals Prices
($/Oz) | |||
Silver | 25.1 | 25.7 | 2.3% |
Platinum | 1,076.0 | 1,062.0 | -1.3% |
Palladium | 1,502.6 | 1,493.5 | -0.6% |
Weekly Returns of Local Gold Compared to Alternative Asset Classes
Local Gold (LE/g) (24k) | 2,999 | 2,965 | -1.13% |
EGX 30 | 17,796 | 17,295 | -2.82% |
1 Year EGP T-Bill** (Yield) | 23.52 | 24.32 | 3.38%*** |
Official Exchange Rate | 30.95 | 30.95 | 0% |
** Weighted average accepted bids of weekly one-year T-Bill
*** When the yield on T-Bills increases the price of the security decreases, therefore the weekly change is negative, and the opposite is true.
Global Update
China is buying more and more gold and adds 8 tons to its gold reserves in April 2023, to reach 2,078 tons.
Throughout the past year, Central banks around the world have been increasing their gold reserves, amidst the heighted geopolitical and economic troubles facing the world. The Chinese central bank has been purchasing gold for 6 consecutive months now with total purchases of around 125 tons of which around 8 tons of gold in April 2023 alone, bringing total gold reserves to around 2,076 tons, equivalent to $110 billion.
International gold price reaches a new all-time high, touching the $/Oz 2,056 mark in the beginning of May 2023.
International gold closed last week at $/Oz 2,017, up by 1.35% compared to the close of the previous week. In the first week of April gold exceeded the $/Oz 2,000 mark, recording a 1-year high of around $/Oz 2,021, and recorded an all-time high of $/Oz 2,056 on May 4th. Again, gold has solidified its “safe haven” status over the past months as pressures on the dollar, high global inflation and the banking crisis continue to linger. In addition, the continued demand for gold by the Chinese has underpinned price appreciation, despite the recent Fed interest rate hike.
Last week, the U.S. Fed raised benchmark rates by 0.25%, bringing the feds fund rate to 5-5.25%, the highest since the 07-08 financial crisis.
Last week marks the 10th rate hike by the Fed in the span of a little over one year. The U.S Fed has continued to raise rates in order to ease market activity and reach the target inflation of 2%. The Fed has also alluded to ending its unprecedented tightening cycle in the coming period.
The European Central bank also raised rates by 0.25%, bringing the rate to 3.25%.
Despite the constant rate hikes since mid-2022. As of April 2023, EU inflation (although slightly decreasing over the past months) remains at the critically high level of 5.6%, which is still above the ECB’s target of 2%. It remains to be seen when and if EU inflation drops to the 2% target which will probably require more rate hikes from the ECB in the coming months.
Local Update
April 2023 has seen a significant surge in local gold prices, as heightened demand pushed the 24k gold price to the LE/g 3,000 mark during the last four days of the month. Last week the 24k local gold slid slightly from a close of LE/g 2,999 to around LE/g 2,965, constituting a weekly drop of 1.13%.
Last week 24k local gold slid slightly from a close of LE/g 2,999 to around LE/g 2,965, constituting a weekly drop of 1.13%. As our price table above indicates, Egyptian gold is now trading at around 32% higher than international gold. This price variation between local and international prices, clearly indicates as we have mentioned before, that demand for gold in Egypt is not price sensitive, rather, demand is naturally driven by people’s affinity for gold and by the recent economic pressures, underpinned by high inflation and devaluation.
Two weeks ago, the leading rating agency S&P had downgraded Egypt’s’ debt outlook to negative status. Last week Egypt’s credit rating was also downgraded from B+ to B.
In the ratings world, a B credit rating is the highest non-investment grade rating, which implies a substantial risk of default with some margin of safety. This is the first time in 10 years that Egypt receives a B credit rating. The unfortunate downgrade again comes on the back of devaluation pressures, the slow pace of economic reforms and prospects of Egypt’s inability to meets its foreign debt obligations.
On a brighter note, the CBE releases Egypt’s Q2 FY 2022-2023 current account data, which now stands at a surplus of around $1.4 billion, for the first time in 8 years.
Egypt’s current account balance was in negative territory (deficit) for the past 8 years, and now for the first time has seen a slight surplus of $1.4 billion in Q2 FY 2022-2023 compared to a deficit of around $3.8 during the same period of the previous year. As per the CBE data, drivers of growth included a 20% y-o-y reduction in imports, a 9% hike in tourism receipts, and 52% increase in FDIs.
What To Look Out For Next Week
Keep an eye out for Egypt’s April Inflation data, and updates about local gold prices.