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Turkey has a record volume of 58.3 tonnes of gold from Switzerland in January Imported, according to new figures from Swiss customs. Of the total $5.1 billion in gold the country imported in January, $3.6 billion came from Switzerland. Last year, Turkey also imported $20 billion in gold, widening the balance of payments deficit to $48.8 billion. From these figures, we can conclude that the precious metal is still in high demand in Turkey. And it's not just private individuals who are buying gold, the central bank also played an important role with the purchase of a total of 148 tonnes of gold over the whole of 2022. Why do the Turks buy so much gold?
As in many Asian countries, Turks mainly buy gold to protect their assets against inflation. And that was probably the main reason why the precious metal is so popular there at the moment. Last year, inflation in the country rose to more than 80%, meaning that the purchasing power of the Turkish lira almost halved in a year. As the graph below shows, the Gold price Turkish lira has exploded in recent years.
To protect purchasing power, Turks are increasingly turning to precious metals. In addition, geopolitical tensions in the world have increased due to the war in Ukraine, which has strengthened the global demand for gold as a safe haven. Also at Holland Gold we receive more and more clients with a Turkish background who want to protect their assets with physical precious metals.
Gold price in Turkish lira has doubled in a year
Turkey imported a total of 188 tonnes of gold from Switzerland last year, up from just 11 tonnes in 2021. So not only the central bank buys a lot of gold, but also private individuals. The latest quarterly report of the World Gold Council showed that the demand for investment gold in Turkey last year had risen to 84.8 tonnes, an increase of 39% from a year earlier. So, despite the rising prices, people continue to buy gold, as they expect the precious metal to hold its value more than the Turkish lira. In fact, in December, Turkey's statistics office recorded a sixfold increase in total imports of precious metals.
In order to become less dependent on the import of gold, the Turkish government wants to further the domestic production of gold Screw-up. In 2000, the Turkish gold mining sector was almost non-existent, but in 2020, gold mines in Turkey already managed to extract 42 tons of gold from the ground. And over the past five years, the sector has extracted an average of 35 tons of gold per year, Turkish President Erdogan recently stated at the opening of the new Gubretas gold mine in the western part of Turkey. This gold mine has made a major discovery and will be able to produce an estimated 6.5 tons of gold on an annual basis. "With these new discoveries, we are trying to further increase production, which is important for the trade balance", Erdogan declared.
Because the demand for gold in Turkey is currently much higher than domestic production, the country has to import a lot of precious metals. And that puts a lot of pressure on the trade balance and currency reserves, because the country has to pay in euros and dollars for the imported gold. Because financial resources are also needed for recovery work after the massive earthquake earlier this month, Turkey has temporarily suspended the import of gold limited. That may push up the premium temporarily, but it is unlikely to curb demand for gold.
As the chart below shows, since 2000 the precious metal has managed to maintain its purchasing power much better than currencies. Although the euro and the dollar outperformed the Turkish lira, this 'strong' currency also lost more than 80% of its value against gold in just over twenty years. Due to high inflation, the precious metal will remain popular for some time, not only in Turkey.
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Currency depreciation against gold since 2000
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