Turkey stockpiles gold as it combats current account deficit

Reuters/Cagla Gurdogan

• More than 550 tonnes in vaults
• Central bank holdings worth $48bn
• Consumer sentiment in reverse

Turkey’s central bank has raised its gold bullion reserves to record levels while limiting sales to the public, as the government attempts to rein in the nation’s current account deficit. 

The central bank, the Türkiye Cumhuriyet Merkez Bankası, based in Altındağ, Ankara, had more than 550 tonnes of gold in its vaults as of February 16, worth a little over $48 billion, just off the record peak of nearly $48.5 billion a week before. 

The February figures represent a turnaround from the first half of last year, when the reserve drew down its own bullion holdings, selling off 159 tonnes between March and May to meet domestic demand from existing resources, while restricting gold imports. 

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However, since mid-2023 Turkey’s central bank has been rebuilding its bullion stocks, even though import restrictions have been maintained, pushing up the domestic price of gold above international rates. 

Despite this, Turks are still active in the market, seeking to buy more gold bullion, the traditional hedge against inflation, while inflation in Turkey is again ramping up.

Turkey’s CPI, having eased to 38 percent last June, is steadily climbing, reaching 65 percent in January. 

Although the flow of gold into the market has been slowed, financial analyst İslam Memiş said continued uncertainty at home and abroad will drive bullion sales in Turkey rather than encourage Turks to maintain their wealth in Turkish lira.

“The demand is due to inflation,” Memiş told AGBI. “Gold has a physical aspect to it, for any eventuality. In light of international developments it is seen as a solid investment.”

The uncertainty was underscored by the latest consumer confidence data, issued by the statistics agency Turkstat on February 21. Reversing five months of improvement, the data showed consumer sentiment falling by 1.1 points to 79.3 points, well below the 100 representing a positive outlook.

Mehmet Ali Yıldırımtürk, a gold and money markets expert, told AGBI that introducing restrictions on bullion imports in order to manage Turkey’s current account deficit, which stood at $45 billion at the end of 2023, was unsuccessful, as were efforts to curb inflation and restore confidence.

“Gold under the pillow actually comes out when Turks trust the economic programme, and we have seen that happen in the past,” Yıldırımtürk said. “They would move to other assets, but to do so they need to trust the financial environment.” 

For Turkey’s government, facing tightly contested local elections at the end of March, increased trust in economic policy literally would be worth its weight in gold.