The main reason for the $1,000 drop in gold prices is central bank selling, with Turkey, Russia... and India could be the next.

Ask AI · Is Turkey’s gold selling reflecting a worsening economic squeeze?

Source: Jinshi Data

The British newspaper Financial Times reported that since the outbreak of the Iran war, Turkey has sold or lent out gold worth $20 billion. This string of gold sell-offs has intensified pressure on gold prices, resulting in the biggest single-month drop since 2008.

According to an analysis by Metals Focus, based on official data, Turkey’s central bank net-sold 52 tons of gold between February 27 and March 27, bringing its central bank net reserves down to 440 tons, the lowest level in more than two years. Based on calculations by the Financial Times, during this period the bank also arranged about 79 tons of gold swap transactions—renting out gold bars to earn returns and putting downward pressure on gold prices by increasing market supply. At current prices, the total value of these sales and swap transactions is nearly $20 billion.

Global energy shocks and the widening of the war in the Middle East have prompted an increasing number of countries, including Russia and Poland, to consider selling gold to support their domestic currency or improve their fiscal position. Turkey’s central bank is also one of the global central banks selling U.S. Treasuries to support its domestic currency.

Analysts said central banks had previously been a major driver of a bullish gold rally, pushing gold prices to a record high above $5,500 per ounce in January this year. But the recent shift in their behavior has weighed on gold prices. Last month, gold prices fell 11.5%, posting the worst monthly performance in 18 years.

Nicky Shiels, an analyst at refiner MKS Pamp, said: “Central bank selling is the main driver behind the $1,000 drop in gold prices over the past few weeks. The market has been assuming central banks are the backstop… but recently, the data flows and official statements are contradicting that.”

Metals Focus data show that Turkey’s pace of gold selling accelerated in late March, with 31 tons sold in the week ending March 27.

Uğur Gürses, an economic commentator in Turkey who previously worked in the bank’s gold reserves management department, said: “The Turkish central bank has always held 60% to 70% of its reserves in gold. Therefore it has to sell or swap out part of it to raise the required dollar liquidity.”

Gürses said: “If 50 tons of gold enter the market, it could have a huge impact on prices.” He added that he believes the Turkish central bank now has enough liquidity and that there is no need to sell more gold in the short term.

These gold sales underscore Turkey’s determination to support the lira. A stable exchange rate is a core pillar of the country’s more-than-two-year anti-inflation campaign—currently Turkey’s inflation rate is 31%. Based on calculations by Bürümcekçi Research and Consulting, since the start of the Iran war Turkey’s international net reserves have fallen by nearly half, to $46 billion.

These sales also reflect a broader shift in how central banks manage gold reserves globally. According to data from the World Gold Council, an industry group, last year central banks’ net gold purchases totaled about 860 tons, down 20% from the previous year. This year, aside from Turkey, known sellers also include Russia, which sold 15 tons of gold in January and February. Meanwhile, the head of the Polish central bank recently proposed selling gold to raise defense funding, even though the government opposes the plan.

Market participants said that further gold selling this year could come from oil-importing countries hit by the energy crisis (such as India), or from Central Asian countries with large gold reserves.

Gold’s sharp drop last month—contrary to its traditional role as a safe-haven asset and inflation hedge—also reflects four straight weeks of outflows from gold exchange-traded funds (ETFs) since the war began, as some investors rushed to take profits on winning positions amid the flare-up of the conflict in the Middle East.

More and more central banks are also choosing to bring gold back to their home countries. For example, last week France said it has completed a multi-year plan to withdraw gold and no longer holds any gold in the United States.

Not all central banks are selling. According to data released on Tuesday, China’s central bank reported gold reserves of 74.38 million ounces at the end of March, up 160k ounces from 74.22 million ounces at the end of February. This marks the 17th consecutive month that China’s central bank has added to its gold holdings, and also the largest single purchase it has reported in more than a year.

Shaokai Fan, head of Asia Pacific at the World Gold Council, said: “We see that central banks in different countries are currently taking two positions on the gold price trend. In recent months, central banks have increased their interest in gold—but this is a two-way story.”