Did you know that Turkey, the Eurasian nation, mines over 40 tonnes of gold per year on average, and yet the Turkish Central Bank has emerged as the largest buyer of gold amongst all Central Banks in three out of the last four years. In these four years, it bought 441.5 tonnes of gold or 17.5% of total gold (2,522 tonnes) bought by Central Banks.
After a gap of nearly 25 years, the Turkish Central Bank re-entered the gold market in May 2017 and started buying the yellow metal with gusto. Its gold reserves moved up from 114 tonnes in May 2017 to 572 tonnes by March 2023, registering a five-fold rise in gold cache within the last seven years. Currently, 34% of Turkey's foreign exchange reserves is in gold, according to the latest report of the World Gold Council.
Turkey bought 148 tonnes, 134.5 tonnes, and 159 tonnes of gold in calendar years 2022, 2020, and 2019, respectively, as per the World Gold Council. Also, the Turkish Central Bank emerged as the second-largest gold buyer among its peers in 2018 and 2017 when it bought 51.5 tonnes and 85.9 tonnes respectively.
The people of both Turkey and India share a distinct love for gold and tend to stash away large amounts of the precious metal. Citizens from both the nations tend to accumulate savings in the form of gold and both the countries boast of highly skilled gold artisans.
However, Turkey has the distinctive advantage of having many sizable gold mines while Indian geology is a poor producer of gold.
What is behind Turkey's love for Gold?
As per Turkish Central Bank's latest inflation report, in the first quarter of 2023, annual consumer inflation was 50.5%. Such high inflation has left very few options for Turkish citizens that have forced them to buy gold to hedge against inflation.
In January 2020 Turkey's official exchange rate stood at 5.50 Lira for every US dollar. Since then, the Turkish currency has depreciated by 255% to 19.53 Lira per Dollar.
However, the large-scale gold buying has also created a massive deficit in Turkey's current account, which is the broadest measure of trade and investment. The country's current account deficit widened to $48.8 billion in 2022, with gold imports accounting for $20.4 billion. Situation has worsened in the first four months of the current year when the trade deficit increased by 33.2%, amounting to ₹43.5 billion. Despite such a high current account deficit in merely first four months of 2023, Turkish Central Bank bought 30 tonnes of gold and emerged as the second top buyer among its peers in this period.
The Turkish alchemy of liquidating gold
To monetise the public's gold and to curb the practice of buying gold that is leading to higher current account deficit, the Turkish Government introduced a gold deposit scheme. Banks in Turkey also run schemes to funnel gold-money to the economy by inducing the people to monetise their gold for loans and other economic activities, says an International expert on Gold.
Speaking with Fortune India, Somasundaram PR, Managing Director (India), World Gold Council says, Turkey's Central Bank runs active market operations in gold. The Turkish Central Bank allows commercial banks to hold gold and count as Cash Reserve Ratio. It also takes gold from the banks and releases it into the market. Turkish Central Bank gold related activities are not to be seen as comparable with other Central Banks which do not actively deal in gold, he adds.
In 2017, the Turkish Parliament legislated to give the Right of First Refusal to its Central Bank to purchase the gold mined in the country at prevailing market prices.
The value of the Central Bank’s stockpiles surged despite its weakening currency and widening Trade deficit. The Turkish Central Bank is not only a buyer in gold but it is also a big seller of gold. In Q1 of CY2023, Turkish Central Bank sold 15 tonnes of gold in March before buying 45 tonnes of gold in January and February.