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The local gold market experienced a sharp rise in prices and a state of confusion on Wednesday, following the decision of the Central Bank of Egypt (CBE) to let the exchange rate be determined by supply and demand. This coincided with a 6% increase in interest rates to curb high inflation.

Saeed Embabi, CEO of iSagha, an online platform for selling gold and jewelry, said that gold prices increased by about EGP 220 during today’s trading, compared to the end of yesterday’s trading. The price of one gram of 21-carat gold reached EGP 3,200. He noted that the market was facing uncertainty in pricing after the devaluation of the pound against the US dollar, which exceeded EGP 50 in banks.

He added that one gram of 24-karat gold recorded EGP 3,657, one gram of 18-karat gold recorded EGP 2,743, and one gram of 14-karat gold recorded about EGP 2,134. One gold pound recorded EGP 25,600, while ounces increased by about $7, reaching a level of $2,134.

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Embabi explained that CBE’s decisions today would stabilize the exchange rate, eliminate the black market, and reduce inflation. He pointed out that unifying the exchange rate would also help attract foreign investments, as well as ensure the return of remittances from Egyptians working abroad, which had declined significantly over the past year.

The Monetary Policy Committee (MPC) of CBE decided in its extraordinary meeting to raise the overnight deposit and lending rates and the central bank’s main operation rate by 600 basis points to reach 27.25%, 28.25%, and 27.75%, respectively. The credit and discount rates were also raised by 600 basis points to reach 27.75%, as the monetary tightening policy continued to be implemented, according to CBE’s statement today.

CBE affirmed its commitment to continue its efforts to move towards a flexible framework for inflation targeting, by maintaining inflation as the nominal anchor of monetary policy while allowing the exchange rate to be determined by market forces. Unifying the exchange rate is a vital step, as it eliminates the excess demand for foreign currency resulting from the gap between the official and parallel market exchange rates.

p dir="ltr" style="text-align: left;">According to the statement, MPC believes that the decision to raise key interest rates by 600 basis points would help contain monetary conditions in line with the plan to lower inflation rates.>

Gold price (XAU/USD) retreats from a fresh record high touched earlier this Thursday, albeit manages to hold its neck above the $2,200 mark heading into the European session.

From a technical perspective, the overnight strong positive move confirmed a breakout through a bullish flag chart pattern and validated the positive outlook for the Gold price. That said, the Relative Strength Index (RSI) has moved back above the 70 mark, making it prudent to wait for some near-term consolidation or a modest pullback before traders start positioning for any further appreciating move. Nevertheless, the broader setup supports prospects for an extension of the recent well-established strong uptrend witnessed over the past month or so.

Meanwhile, any meaningful corrective decline below the $2,200-2,190 region is likely to attract fresh buyers and remain limited near the $2,160-2,158 horizontal zone. This is followed by the weekly swing low, around the $2,146 area, which, if broken decisively, might prompt some technical selling and drag the Gold price further towards the next relevant support near the $2,128-2,127 zone. The XAU/USD 

could decline further, eventually dropping to the $2,100 round figure.

Gold price (XAU/USD) retreats from a fresh record high touched earlier this Thursday, albeit manages to hold its neck above the $2,200 mark heading into the European session. The Federal Reserve (Fed) on Wednesday projected a 75 basis point rate cut by end-2024, keeping the US Dollar (USD) depressed near a one-week trough and pushing the non-yielding yellow metal higher for the second straight day. That said, elevated US Treasury bond yields help limit the downside for the Greenback.

Apart from this, the prevalent risk-on environment – as depicted by an extension of the recent bullish run across the global equity markets – caps the upside for the safe-haven Gold price amid slightly overbought conditions on the daily chart. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the XAU/USD remains to the upside, warranting some caution before positioning for any meaningful corrective fall in the near term. Traders now look to the release of flash PMIs for cues about the global economic health, which, in turn, might provide some impetus to the precious metal.

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