Gold Surges to Record in Turkey And Other Emerging Markets as Currencies Collapse

The comments below are an edited and abridged synopsis of an article by Mark O’Byrne

With just a month until elections, shopkeepers at Turkey’s Grand Bazaar—one of the world’s oldest covered markets—say they’re seeing a jump in demand for gold coins. More customers are buying gold, not selling it, in hopes that the metal will keep its worth as the value of the lira plunges.

Gold has a special importance in Turkey. The country is to home the ancient kingdom of Lydia, where the earliest known gold coinage originated in the 7th century B.C.

Turkey imported 118 tonnes of bullion ($5 billion at today’s prices) in first 4 months of 2018, the most over that period. Last year, imports reached a record.

Official reserves have also increased over the past year. The central bank doesn’t comment on its gold strategy, but previously said the changes in its holdings are part of an effort to diversify its reserves.

The reported figure may be high, because the central bank allows commercial banks to deposit gold as part of their reserves. Last year the government launched a campaign to get more “under-the-pillow gold” into the formal banking system. About half of the 216-ton inflow since the start of 2017 can be attributed to this alternative source.

Even so, the purchases have happened a year after Erdogan urged Turks to convert their foreign currency savings into liras and gold, and tensions with the US reached a new low.

In 2017, the central bank withdrew of its 28.7 tons of gold, worth about $1.2 billion, from Federal Reserve vaults. It didn’t say where the gold went, but holdings increased at Borsa Instanbul, the Bank of England and Bank of International Settlements, according to a report released in April.