From major buyers to major sellers! Turkey sells 60 tons of gold, is the central bank's gold-buying spree cooling down?

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Source: Huitong Finance

Within two weeks after the outbreak of the Iran war, the Turkish Central Bank utilized approximately 60 tons of gold, valued at over $8 billion, through sales and swap operations. This action exerted significant downward pressure on the global gold market. Previously, gold prices had declined for nine consecutive days, reaching a nearly four-month low of $4,099.02 per ounce, and overall gold prices remained relatively low this week. On Friday (March 27), during the European trading session, spot gold fluctuated upward, currently trading around $4,450 per ounce, with an intraday increase of about 1.65%.

Data from the Turkish Central Bank’s reserves showed that gold reserves decreased by 6 tons in the week of March 13 and further dropped by 52.4 tons in the week of March 20, totaling nearly 58.4 tons. Analysts estimate that more than half of this was completed through overseas “gold for foreign exchange” swap agreements.

As one of the most active gold buyers globally over the past decade, Turkey’s action marks a significant shift in its central bank’s gold reserve policy. Previously, Turkey’s total gold reserves amounted to about $135 billion, and this utilization was primarily aimed at meeting domestic liquidity needs and stabilizing the lira exchange rate.

Major Shift in Turkish Gold Policy

For a long time, Turkey has actively increased its gold holdings to reduce dependence on dollar-denominated assets. However, following the outbreak of the Iran war, the surge in energy import costs and soaring dollar demand forced the central bank to adjust its strategy, turning to utilize gold reserves in exchange for foreign exchange or lira liquidity.

This shift occurred as Turkey’s “de-inflation” strategy faced pressure. This strategy heavily relies on maintaining the stability or orderly depreciation of the lira exchange rate, typically achieved through foreign exchange interventions by state-owned banks. The central bank’s large-scale gold operations highlight its flexibility in response to external shocks.

Economic Pressure Under the Iran War

The Iran war has directly impacted the Turkish economy. The country relies almost entirely on imports for its oil and natural gas, and the conflict has led to rising energy costs and increased pressure on the balance of payments. Currently, Turkey’s inflation rate reached as high as 31.5% in February, which is relatively high globally.

Since the war broke out, Turkey has responded to the crisis by tightening liquidity, raising lira financing costs, and having state-owned banks intervene in the foreign exchange market. Foreign exchange reserves (excluding gold) have significantly decreased, forcing the central bank to consider utilizing approximately $30 billion in gold reserves held at the Bank of England for intervention.

Impact on Global Gold Prices

The scale of gold sales by the Turkish Central Bank exceeded the outflows from gold ETFs during the same period (approximately 43 tons), directly exacerbating the downward pressure on gold prices. This month, gold prices have cumulatively dropped by about 15%, partly due to profit-taking following significant increases last year, while Turkey’s actions further amplified the correction. Following reports, global spot gold prices shifted from an upward trend to a downward trend.

Analysis of Sales and Swap Operations

The Turkish Central Bank’s operations included some direct gold sales, with most through swap agreements to exchange for foreign exchange or lira liquidity. This method of “selling spot and agreeing to repurchase in the future” essentially uses gold as collateral to obtain low-cost dollar financing, a common liquidity management tool for central banks.

J.P. Morgan economist Fatih Akcelik pointed out that the gold stored by Turkey at the Bank of England can be directly used for trading in the London market, with no logistics restrictions, facilitating quick interventions in the foreign exchange market.

Recent Comments from Institutions and Analysts

Daniel Ghali, a commodity strategist at TD Securities, stated that the economic shock from the Iran war could weaken some central banks’ demand for gold while forcing other central banks to sell reserves to meet dollar-denominated obligations. He believes that the overall trend of global central banks increasing gold holdings will significantly slow in the short term.

Finance and economics blog Zerohedge commented that the market had been speculating on the identity of sellers driving gold into a correction from January’s highs, and it is now confirmed that the Turkish Central Bank is a significant seller.

Iris Cibre emphasized that Turkish officials utilized approximately $135 billion in gold reserves to meet liquidity needs and stabilize their domestic market.

Editor’s Summary

The Turkish Central Bank’s large-scale sell-off and swap operations involving nearly 60 tons of gold during the Iran war reflect its policy adjustment in response to external geopolitical conflicts and domestic inflationary pressures. While this action temporarily alleviated lira and foreign exchange pressures, it also exerted downward influence on global gold prices.

If the war continues, Turkey’s energy import costs and balance of payments challenges will continue to test its reserve management capabilities, while the trajectory of the global gold market will depend on changes in net demand from major central banks and the evolution of geopolitical risks.

(Spot gold daily chart, source: Yihuitong) As of 15:31 Beijing time, spot gold is currently quoted at $4,450.52 per ounce.

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Editor: Song Yafang