Why did Turkey reduce its gold holdings by 58.4 tons in two weeks amid the US-Iran conflict?

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By: Le Ming

A digital development that has left global financial markets stunned has surfaced recently: the Turkish central bank cut back on roughly 58.4 tons of gold within just two weeks, worth more than $8 billion. Of that, the week of March 13 saw a drop of 6 tons, while the week of March 20 saw a sharp decline of 52.4 tons.

The central bank’s weekly data clearly paints the picture: from March 13 to 19, the market value of gold reserves plunged from $134.1 billion to $116.2 billion, evaporating nearly $18 billion in a single week; meanwhile, foreign-exchange reserves (excluding gold) actually rose by $5.8 billion over the same period.

Between one drop and one rise, the footprints of “swapping gold for foreign exchange” are all too obvious.

Over the past decade, Turkey has been one of the most aggressive gold buyers globally, accumulating gold reserves from 116 tons in 2011 to more than 820 tons.

After finally building up these assets, why would Turkey suddenly dump them at scale within just two weeks?

The answer is only three words: to survive.

The spark: a war that pushed Turkey into a “perfect storm”

On February 28, the United States and Israel jointly launched a military operation code-named “Wrath of Epic,” carrying out airstrikes on Iran’s nuclear facilities, military bases, and government buildings.

Iran retaliated immediately, effectively blocking the Strait of Hormuz—where 20% of global seaborne oil and 20% of LNG trade pass through.

Brent crude surged from the pre-war level of $73 per barrel to above $106, an increase of more than 40%. The International Energy Agency defined it as the “most severe global energy security challenge in history.”

For most countries, this is just a shock; but for Turkey, it is a survival crisis.

Turkey relies on imports for 90% of its oil and 98% of its natural gas. For every $10 increase in the price of oil per barrel, the current account deficit grows by $4.5 billion to $7 billion. Based on post-war oil prices, Turkey’s annual energy import bill could jump by roughly $15 billion.

The more lethal blow came on March 24: Israel struck Iran’s South Pars gas field with airstrikes, and Iran immediately halted natural gas exports to Turkey. Iran is Turkey’s second-largest pipeline natural gas supplier, accounting for about 13% to 14% of its gas imports. The 25-year contract for this pipeline was set to expire in July 2026—meaning the war turned renewal prospects into a mirage.

In simple terms, Turkey’s situation is: the energy bill suddenly doubles, the key gas supply is cut off directly, and in the short term there is no equivalent substitute to be found.

Transmission chain: foreign-exchange reserves can’t hold first

Because energy imports have to be settled in dollars, importers scramble for dollars, and the lira promptly plunges.

In the 16 trading days since the conflict began, the lira against the dollar hit fresh historical lows 11 times in a row, reaching about 44.35 lira per $1 on March 25.

Behind this was foreign investors accelerating their exit: within three weeks, foreign capital leaving Turkish bonds reached as much as $4.7 billion, equity market outflows were $1.2 billion, and arbitrage positions shrank from the record $61.2 billion in January to below $45 billion.

The Turkish central bank was then forced to launch a “lira defense battle.” In just the first week of March, it sold more than $8 billion in foreign exchange. In the three weeks through March 19, the central bank cumulatively consumed about $25 to $30 billion in foreign-exchange reserves. After deducting forward-period effects, net reserves fell from $54.3 billion before the war to $43 billion.

Turkey’s weekly data fully records this process: foreign-exchange reserves (excluding gold) fell from $55 billion on March 6 to $47.8 billion on March 13—using up foreign-exchange ammunition first. By March 19, foreign-exchange reserves rebounded to $53.6 billion, but gold reserves simultaneously collapsed from $134.1 billion to $116.2 billion—foreign-exchange ammunition was nearly out, and gold started being used.

This is a textbook emergency defense sequence of “use foreign exchange first, then use gold.”

Chart: Foreign-exchange data released by the Turkish central bank

Gold swaps: why not “sell,” but “swap”?

Understanding this operation hinges on one point: more than half of Turkey’s gold reduction was carried out through swaps, not by directly selling.

The essence of a gold swap is “exchange gold for foreign exchange, then redeem at maturity.” The central bank hands the gold to the counterparty (typically a top-tier investment bank), receives dollar amounts equal in value, while also signing a forward contract that stipulates buying back the gold in the future at a slightly higher price. It is a form of short-term financing, not a permanent full liquidation.

The central bank’s choice of swaps instead of a hard sell reflects at least three considerations.

First, preserve long-term positions. If it judges that the surge in oil prices is only a temporary shock, swaps can address the immediate crisis. Later, it can redeem the gold, preventing the destruction of what was accumulated over a decade “in one fell swoop.”

Second, reduce the impact on gold prices. Selling 60 tons of gold directly would be enough to trigger a cliff-like plunge in the market, which would dramatically shrink the remaining gold reserves of more than $100 billion. With swaps conducted in the over-the-counter market, the shock is much smaller.

Third, a buffer on the domestic political front. For Turkish people, gold is an “anti-inflation totem.” Announcing large-scale gold sales easily sparks panic, whereas swaps can keep a certain degree of technical ambiguity.

The reason this operation could be completed quickly within two weeks is thanks to a key pre-arrangement: Turkey stored roughly 111 tons of gold at the Bank of England, worth about $30 billion. These gold can be used for foreign-exchange interventions without logistics constraints—no need to ship physical assets across borders; instead, they can be pledged and monetized directly in London’s financial district.

Pressure on the gold price

Turkey has a historical pattern: sell gold during a crisis, buy it back after the crisis.

The 2018 lira crisis, the 2020 pandemic shock, the 2023 earthquake—each time the central bank reduced its gold holdings to provide liquidity, but afterward it restored accumulation. Analysts broadly believe that the March 2026 operation continues this pattern.

However, this assessment rests on a core premise: the war cannot last long.

Swap agreements come with holding costs and interest. If the war continues, energy prices remain anchored above $100 for the long term, and Turkey’s ability to generate foreign exchange cannot cover the soaring energy bills, then these “temporary swaps” would never be redeemable, effectively turning into a “permanent fire sale.”

So over the coming weeks, if the fighting continues, Turkey will need to keep turning its $135 billion gold reserves into a lifeline.

Although Turkey tends to obtain foreign-exchange liquidity by “pledging” gold, these transactions still effectively add downward pressure to the gold market. In London’s OTC market, when the Turkish central bank transfers dozens of tons of gold as collateral to international counterparties (such as investment banks) in exchange for dollars, these financial institutions that receive the gold typically hedge their position risks by conducting corresponding short-selling or liquidation activities in the spot or futures derivatives markets.

Therefore, the liquidity of this batch of gold will ultimately still flow through to the market, indirectly increasing supply and pushing prices down.

Conclusion

In two weeks, the Turkish central bank unloaded 60 tons of gold—not out of panic, and not for speculation, but as rational self-rescue by a country highly dependent on energy imports that, after its allies bombed its largest energy supplier, faces triple blows: a depletion of foreign exchange, a collapse of the lira, and a cutoff of natural gas supply.

Chart: The market is疯狂ly shorting the lira—on the one hand betting the war won’t end quickly, and on the other betting that Turkey will ultimately not be able to hold on

As the outlook for the fighting worsens, Turkey still needs to keep absorbing pressure.