Sibel Akbay at Bloomberg is reporting on the efforts of Turkish banks to lure gold privately held by the citizens into their vaults, partly for resale to Iran. Due to hyperinflation that reached 70% ten years ago, Turks have become accustomed to sinking any spare cash into gold. Gold is often given as gifts at weddings, births and circumcisions. Market analysts estimate that there is up to 5,000 tons of gold hiding in Turkish mattresses, with a market value of over $300 billion.
The push to bring this gold into the economy stems from Turkey’s current accounts deficit, second only to the United States. If the Turkish banks can get people to cash in their gold, this gold reenters the economy, to be sold once again. Even in accounts where the depositor is not selling the gold, just using it as collateral for loans or lines of credit, the bank uses the gold to increase it’s gold reserves. Those reserves are held at Turkey’s Central Bank. Turkish banks are preparing to enter the retail market for gold, buying and selling bullion at branch banks, and allowing depositors to withdraw their account balances in gold. This of course is meeting resistance from Turkey large jewelry industry, for hundreds of years the place the average Turk bought gold.
Most of the bank resale of this gold is not going back to domestic consumption, however. Turkish law allows banks to pay liabilities in gold instead of currency, and Iran, being cut off from global financial markets by economic sanctions, has plenty of oil and lacks hard currency. Voice of America last month reported that Turkey has already exported $6 billion worth of gold to Iran, with whom it shares a common border. Since Turkey only produces 25 tons of gold annually, it is buying gold on the global market to resell at a premium to Iran. Getting its own citizens to cash in some of the estimated 5,000 tons of gold hoarded domestically would noticeably affect Turkey’s trade deficit, since they have imported 109 tons of gold already this year.
-by David Peterson