CAIRO (Middle East Eye) – Egyptians are hoarding as much gold as they can, trying to protect their savings, as their national currency continues to lose value against foreign currencies.
The stampede for gold has raised its price in the local market sharply, enticing specialists to warn against what might turn into a gold price bubble.
Gold is now priced in relation to the exchange rate of the U.S. dollar in the parallel, not in the official, market, independent economist, Mamdouh al-Wali, told Middle East Eye. “Speculation is very high, raising uncertainties about the price of this metal and other commodities in the future,” he said.
A U.S. dollar sells for over 28 pounds in the parallel market, while the banks set the price of one dollar at 24.50 pounds.
The Egyptian pound has been losing value against foreign currencies, especially the U.S. dollar, since the beginning of the war in Ukraine in February.
The decline in the value of the Egyptian national currency is mainly driven by pressures exerted on it by the consequences of the war in a country heavily dependent on food imports, especially from the two countries involved in the war.
The war-driven rise in the prices of grains, cereals and legumes in the international market created more demand for U.S. dollars in Egypt which now needs to pay more for its food imports.
The most populace country in the Middle East and North Africa, Egypt imports most of the wheat, maize and cooking oils its people consume, with national production of these data-x-items covering less than 50 percent of national consumption.
The demand for foreign currencies to cover the growing cost of imports has also compounded the flight of billions of dollars in foreign assets from Egypt, especially against the backdrop of interest rate hikes in other countries, particularly the U.S.
To cope with these developments, Egypt, which follows a managed exchange rate regime, had to devalue its national currency twice this year, once in March and then in October.
The currency devaluation is supported by the IMF which expects the move to unwind external imbalances, boost Egypt’s competitiveness, and attract foreign direct investment.
However, the same move has caused the pound to lose close to 50 percent of its value against all foreign currencies, especially the greenback, the main import and export currency.