Quick overview

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Turkey’s central bank exchanged and sold roughly 60 tons of gold in just two weeks following the start of the war in Iran, valued at over $8 billion, further driving down bullion prices.

Turkish gold reserves show a sharp decline of 6 tons in the week of March 13 and another 52.4 tons in the week of March 20. According to people familiar with the situation, most of that was used to secure foreign exchange or liras through swap agreements, while a portion was sold outright.

The action coincides with pressure on Turkey’s disinflation strategy, which mainly depends on keeping the lira stable or steadily declining through currency interventions, typically through state-run banks. Maintaining that strategy has become more difficult due to rising energy import costs and increased demand for dollars since the start of the conflict.

Iris Cibre, the founder of Phoenix Consultancy in Istanbul, claims that to meet liquidity needs and stabilize domestic demand, officials have resorted to gold sales and gold swap agreements from the central bank’s $135 billion stockpile. Over half of the 58.4 tons of total sales were made through gold-for-foreign-exchange transactions overseas.

That sum is more than the 43 tons of outflows from gold-backed exchange-traded funds that Bloomberg tracked during the same two-week period. One of the most common ways for both institutional and individual investors to gain exposure to gold is through exchange-traded funds (ETFs). In an effort to protect the lira from more severe war-related losses, Turkey’s central bank has been considering using its gold reserves through transactions in London.

The report caused the spot price of gold to swing from an earlier gain to a loss on international markets. For Turkey, which has been among the most aggressive in the world, the sales represent a reversal.