Demand for gold soars as Turkish investors seek safe haven

Reuters/Huseyin Aldemir

• Inflation reached 69% in March
• Lira down sharply against dollar
• Gold hit all-time high on April 12

Rampant inflation, a weakening currency and geopolitical tensions are boosting demand for gold in Turkey, according to a World Gold Council report published on Tuesday.

Turkey’s annual inflation hit a 16-month peak of 69 percent in March, with the central bank’s aggressive interest rate rises doing little to slow the pace of consumer price increases. The country’s benchmark interest rate is now 50 percent, up from 8.5 percent before the presidential and parliamentary elections in May 2023.

Historically, gold has been a hedge against inflation and a currency’s declining purchasing power. The Turkish lira has fallen 40 percent versus the dollar in the past 12 months. It is down 94 percent against the US currency over the past decade.

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The World Gold Council said there was “no current end in sight” for the economic and geopolitical circumstances that are driving investment. “Demand is likely to remain robust, albeit that continued record highs in the price may stifle continued strong growth of the scale seen in recent quarters.”

Although Turkey has limited bullion imports to 12 tonnes per month, “demand remains lofty”, the report said.

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These restrictions have increased the premium that domestic buyers must pay for gold to more than $200 per ounce in March, from $50-100 in January and February.

Gold hit an all-time peak of about $2,427 per ounce on April 12, the day before Iran launched a barrage of rockets at Israel in response to the deadly attack on the Iranian consulate in Damascus.

In terms of bars and coins, Turkish demand for gold was 44 tonnes in the first quarter of 2024, up 50 percent on the preceding three months, the report said.

First-quarter demand was also nearly double the five-year quarterly average of 24 tonnes.

For gold jewellery, demand in Turkey rose for an eighth straight quarter to 11 tonnes – the strongest first quarter since 2015.

Turkey’s central bank bought a further 30 tonnes of gold in the first three months of this year, expanding its reserves to 570 tonnes.

Demand around the Middle East and North Africa

The report explains that Asian gold investors, including those from the Middle East, are historically more responsive to price fluctuations. They typically do not buy when the price soars and instead sell to bank profits. Western investors usually buy into rallies.

These roles have reversed in the first quarter, however. Demand in Asia is showing “considerable growth, unaccompanied by a marked increase in profit-taking”, according to the World Gold Council.

Mena demand for gold jewellery fell 4 percent year on year to 42 tonnes in the first quarter. Weaker sales in Saudi Arabia and the UAE have been attributed to rising prices, outweighing growing demand for gold jewellery in Egypt. Local gold prices eased after the Egyptian pound recovered slightly from all-time lows versus the dollar.

In contrast, Egyptian quarterly demand for bars and coins fell 36 percent year on year in what the report attributes to improved economic sentiment following currency reforms and Egypt’s multibillion-dollar funding agreement with the International Monetary Fund.

Quarterly bar and coin purchases in the Middle East fell 15 percent to 26 tonnes year on year, although this was from a “very high” base in the prior-year period. Demand was near-flat versus the preceding three months and 35 percent above the five-year quarterly average, the report adds.