Run on gold in Turkey continues

Turks are buying gold en masse this year to protect their wealth from the depreciation of the Turkish lira, according to reports Bloomberg. Since the beginning of this year, the currency has already expired 25% of its value against the dollar. Also, inflation is much higher than interest rates, so saving no longer makes much sense. In an attempt to stop the currency's depreciation, President Erdogan decided to replace the governor of the central bank earlier this month. However, this has not been to any avail, because Turks still remain much Buy gold.

In the two weeks after Erdogan appointed a new president at the central bank, the Turkish people have bought the equivalent of $2.2 billion worth of gold. According to central bank figures, commercial banks now manage $36.4 billion worth of gold for their customers, almost three times as much as at the end of last year. In fact, the demand for gold is so high that imports of the precious metal account for most of the deficit in the balance of payments.

In addition to gold, Turks also seek refuge in foreign currencies. Hard currency balances rose $34.5 billion this year to a record $228.2 billion. Over the past two weeks, Turks added nearly $4 billion in foreign currency to their wealth.

Turks keep more gold in commercial banks

Flight to gold

Earlier this month, the Gold price In Turkey, the price of gold on the international market and a rebound in the lira caused the price in the Turkish currency to fall by ten percent. Despite this correction, Turks continue to prefer the precious metal, as it holds its value better than the lira in the long term. In the graph below, we have compared the price development of gold in Turkish lira over the past twenty years with the price development in euros and US dollars.

This chart shows that all currencies lost purchasing power against gold, but the Turkish lira did much worse than the euro and the dollar. Today, the gold price in euros is 5.5 times as high as it was at the beginning of this century, in dollars it is now 6.5 times higher. That seems like a lot, but it is nothing compared to the Turkish lira. For a troy ounce of gold, you now pay more than 90 times as much in this currency as you did twenty years ago. Converted, that is an average increase in value of 8.93% per year in euros, 9.77% per year in US dollars and 25.32% per year in Turkish lira. No savings interest rate can compete with that.

Gold price in Turkish lira skyrockets

Also Read:

• - Erdogan: "Exchange dollars, euros and gold for Turkish lira" (August 2018)
• - Turkey Rapidly Expands Gold Reserves (January 2020)
• - Turkey further ramps up gold purchases (June 2020)

This contribution was made from Geotrendlines