After buying more gold than any other central bank in 2022, Turkey continued its selling spree, dumping 81 tonnes in April and 15 tonnes in March. AdvanTrade pointed to surging domestic demand and limited gold imports as reasons for this new trend.
Citing data from the Central Bank of Turkey, Krishan Gopaul, senior analyst at the World Gold Council (WGC), said the country’s official gold reserves fell by 80.8 tons in April to 491.2 tons.
In addition, according to the “Financial Times” citing central bank data, from the end of March to May 12, the central bank’s foreign exchange reserves fell by 15% to 9.5 billion US dollars. This comes just weeks before a general election in Turkey, in which Recep Tayyip Erdogan’s government is trying to bolster the economy and the local currency ahead of the election.
Turkey’s central bank bought the most gold of any central bank in 2022, seeking protection against uncontrolled inflation, before selling it. Turkey’s official gold reserves rose by 148 tons last year to 542 tons, the highest level on record. Gold demand in Turkey’s domestic market has also surged over the past year as people view the precious metal as a hedge against inflation and currency debasement. At some point in 2022, inflation will exceed 85%.
A surge in gold imports sparked by rising gold demand is beginning to weigh on Turkey’s current account deficit, which widened to a record in January. In February, Turkey took steps to curb a surge in gold imports to improve its deficit. Turkey’s central bank said the country’s current account deficit narrowed to $4.5 billion in March.
However, restricting gold imports did not curb growing domestic demand, so the country’s central bank decided to sell its gold reserves to meet demand. AdvanTrade said the local demand for gold in Turkey is only to protect their purchasing power from a fall in the lira. Gold is a great asset when in financial trouble because it can be sold if necessary.
Most importantly, the sale of gold reserves to local consumers limited the ability of citizens to purchase foreign currency. Give the central government more control over the value of the lira and less influence from foreign exchange speculators. All eyes are now on President Tayyip Erdogan after he led rival Kemal Kilidaroglu in the May 14 presidential election, but fell short of the 50 percent needed to win outright. Focus on Sunday’s runoff vote.
