Turkey further ramps up gold purchases

Turkey has been very active in the gold market in recent months. The country has already added 270 tonnes of gold to its reserves since the beginning of last year, more than any other country in the same period. Even Russia and China did not buy that much gold in the same period, according to figures from the World Gold Council. In April, Turkey added 38.8 tonnes to its stocks, having already purchased 31.6 tonnes in March. China has not been buying gold for months, while Russia very recently launched its purchase program discontinued.

Turkey's gold purchases are striking, as the country is in dire economic straits. The country has had to draw on part of its dollar reserves to slow down the continuing depreciation of the lira. In August 2018, President Erdogan called on his people to buy gold and foreign currencies such as euros and dollars to swap for Turkish Lira. In vain, because the value of the currency dropped to a low level this year. New low.

Most recently, President Erdogan Attacking on speculators who would smuggle dollars out of the country. Turkey desperately needs the dollars, because companies and banks have a relatively large number of liabilities in dollars. To meet these obligations, they constantly need dollars, which have become scarce due to capital flight to the United States. Turkey also has no Swapline with the Federal Reserve to temporarily cushion the scarcity of dollars.

Why is Turkey buying gold?

Due to the economic problems, the pressure on both the Turkish banking sector and the central bank is increasing. It is therefore striking to see that the central bank is now buying gold on a large scale. One possible explanation is that it is trying to strengthen confidence in the lira. By expanding the gold supply, the implied gold backing of the coin increases.

Another explanation for Turkey's gold purchases is geopolitical. Due to the deteriorating relationship with the United States, economic sanctions cannot be ruled out. In that case, it is wise to exchange foreign exchange reserves for physical gold, because the precious metal has no counterparty risk and can always be traded. For example, in 2018, despite economic sanctions, Venezuela certainly 20 tons of gold sold to Turkey. Turkey also used part of its gold reserves to trade with Iran, which was also plagued by U.S. sanctions.

By expanding its gold reserves, Turkey is hedging against economic, political and geopolitical risks. In doing so, it follows the example of countries such as Russia and China, which have also expanded their gold reserves considerably in recent years. Turkey's total gold reserves currently stand at 524 tonnes, up from 116 tonnes at the beginning of 2017.

Turkey takes the lead in gold purchases (click for larger version)

Turkey has bought a lot of gold in recent years (click for larger version)

This contribution was made from Geotrendlines