Major Shift by Gold Buyers! Turkish Central Bank Sells $8 Billion Worth of Gold During Iran War

Within two weeks of the outbreak of the Iran conflict, the Central Bank of Turkey sold and used swap operations to mobilize approximately 60 tons of gold, worth over $8 billion, putting downward pressure on gold prices.

According to the latest data, Turkey’s gold reserves decreased by 6 tons in the week ending March 13, and another 52.4 tons in the week ending March 20, indicating a significant decline in gold holdings.

Sources familiar with the matter say that some of the gold was sold directly, while most was used through swap agreements to exchange for foreign exchange or lira liquidity:

According to Iris Cibre, founder of Phoenix Consultancy based in Istanbul, Turkish officials mobilized about $135 billion worth of the central bank’s gold reserves through sales and gold swap arrangements to meet liquidity needs and stabilize the domestic market. She estimates the total sale volume at 58.4 tons, with more than half completed through “gold-for-foreign exchange” overseas swaps.

This move comes amid pressure on Turkey’s “de-inflation” strategy, which heavily relies on maintaining or gradually devaluing the lira, typically through foreign exchange interventions by state banks. However, since the Iran conflict erupted, rising energy import costs and increased dollar demand have made this strategy harder to sustain.

The scale of these sales exceeds the outflows from gold ETFs during the same period. According to Bloomberg, gold ETFs saw outflows of about 43 tons over the same two weeks. ETFs are one of the main ways institutional and retail investors hold gold.

Bloomberg reported on Tuesday that the Turkish central bank is discussing using gold reserves traded in London markets to prevent the lira from further sharp depreciation due to the war. This news temporarily caused global spot gold prices to shift from gains to declines on that day.

This sale marks a clear policy shift for Turkey. Over the past decade, Turkey has been one of the world’s most active gold buyers, aiming to reduce dependence on dollar-denominated assets. Gold prices have fallen about 15% this month after a sharp rise since last year, prompting investors to take profits.

TD Securities commodity strategist Daniel Ghali said that the economic shocks from the Iran conflict could weaken some central banks’ demand for gold, while forcing others to sell gold reserves to meet dollar-denominated obligations. Direct gold sales are not impossible, but overall central bank gold accumulation is expected to slow significantly in the short term.

For central banks, it is not uncommon to sell spot gold while entering into swap agreements to repurchase in the future, which effectively acts as collateral for low-cost dollar financing.

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