/ world today news/ Turkey’s economic policy has many characteristics. One of them is betting on gold. The volume of extraction of the precious metal is increasing, the demand for it from the population, commercial banks and the Central Bank is increasing, gold reserves are increasing as part of the international reserves of Turkey, the domestic gold market is developing and developing, and the import of the yellow metal is supported and increased.
By the end of the 20th century, gold production in Turkey was close to zero, but the last two decades have become times of steady growth in the production of the precious metal. This was preceded by large-scale geological exploration works in 1985-2000. Large deposits of gold were discovered – “Ovajik”, “Kushladag” and others. Mining enterprises were created on their basis. The explored reserves of gold in the country are estimated at 800 tons, the estimated resources at 6,500 tons. If in 2000 the gold production in Turkey barely exceeded one ton, then by the middle of this decade the annual production increased to 30 tons. In 2019, 38 tons were mined. Against the backdrop of many other gold-producing countries, Turkey’s gold supply, measured by probable resources, is considered good.
This year, according to the estimates of the Turkish Association of Gold Mining Companies, the production of the precious metal should increase by 16% and reach 44 tons. This is comparable to the annual production volume of Colombia or Bolivia. At the beginning of the year, the head of the Turkish Association of Gold Mining Companies, Hasan Yucel, made a statement: “We can increase local production to 60 tons in the next five years through government planning and strategy.”
It is believed that the largest population demand for gold is maintained in India, but the record scale of such demand is also explained by the huge population. If we take the relative indicators of consumer demand for gold (jewelry), then Turkey surpasses India in terms of such demand per capita. Turks traditionally donate gold for weddings, circumcision ceremonies and other celebrations. Gold is sometimes used as money – the gold metal, for example, is used in renting Kapalacarsi in Istanbul.
There is no value added tax on purchases of gold by individuals (in Russia it is 20%). Over the past 25 years, annual consumer demand for gold in Turkey has averaged around 160 tons. The Turkish Gold Mining Association predicts that demand will decrease slightly in 2020. Turkish citizens are expected to purchase around 150 tons of gold. However, due to the rapid devaluation of the Turkish lira, the demand among the population for gold, on the contrary, is increasing. Turks began to acquire mainly investment coins and small gold bars. That is, gold began to be widely used as a vocabulary tool. In the first half of August, against the background of the rapid devaluation of the lira and the increase in the price of gold (its price in the summer broke the level of 2,000 dollars per troy ounce), the population bought gold for 7 billion dollars.
Domestic metal production, despite its high dynamics, is only sufficient to cover about a quarter of domestic consumer demand. The rest is covered by imports. In the last 20 years, the Republic of Turkey has imported about 130-140 tons of precious metal annually. Meanwhile, Britain, Switzerland, China and India are considered the world’s biggest gold buyers. However, the first two countries re-export some of the precious metal purchased on the world market. But China, India, Turkey accumulate purchased gold in the country. Again, in terms of the relative level of gold imports (per capita), Turkey is ahead of both China and India.
I will quote the data of the World Gold Council on the value of gold imports in 2019 – top 10 (billion dollars, in brackets – the country’s share of world gold imports, %):
1. Great Britain – 70.8 (23.1%)
2. Switzerland – 60.7 (19.8%)
3. China – 43.9 (14.3%)
4. India – 32.2 (10.5%)
5. Hong Kong – 14.0 (4.6%)
6. Turkey – 11.2 (3.7%)
7. Singapore – 10.1 (3.3%)
8. USA – 9.7 (3.2%)
9. Thailand – 7.0 (2.3%)
10. UAE – 6.8 (2.2%).
So, last year, Turkey ranked seventh in the world in terms of purchases of precious metals on the global market. There is reason to believe that she will climb the rankings over time. According to the CCS in the period 2015-2019. there was a decrease in the volume of imported purchases of gold from countries such as Switzerland (by 15.0%), UAE (73.5%), Hong Kong (61.4%). And the increase in imports is observed in Great Britain, Singapore and Turkey. In particular, Turkey increased its gold imports in value terms in 2015-2019 by 227.8%.
Gold imports from Turkey are needed not only to meet consumer and investment demand in the domestic market, but also to increase official gold reserves. This is done by the Central Bank. For several years, the Central Bank of Turkey has been part of a group of central banks that have been making large purchases of the precious metal and increasing official gold reserves.
Central banks increased their official gold reserves by 651.5 tonnes in 2018, the largest annual rate since 1971, when the gold standard was lifted. The Bank of Russia became the biggest buyer in 2018, increasing its gold reserves by 274 tons. The Central Bank of Turkey (+51.5 tons) is in second place in terms of gold purchases, and the National Bank of Kazakhstan (+50.6 tons) is in third place.
In 2019, the net purchases of gold by the central banks of the world amounted to 650.3 tons, i.e. remain almost unchanged. The Bank of Russia remained the leader in purchases, increasing its reserves by 158 tonnes over the year. The Central Bank of Turkey increased its reserves for the same period by 64 tons. In the III and IV quarters of 2019, the Central Bank of Turkey sharply increased the purchase of gold, while the Bank of Russia, on the contrary, began to reduce the accumulation of gold reserves. Since the second half of last year, the Central Bank of Turkey has become the leader among central banks in terms of purchases of precious metals for reserves. In the first quarter of this year, the increase in gold reserves of all central banks in the world amounted to 145 tons. The central bank of Turkey accounted for 72.7 tonnes, or half of the total global growth. For comparison: the increase in the gold reserves of the Bank of Russia in the first quarter of this year amounted to only 28 tons. And from April 1, the Bank of Russia announced the cessation of gold purchases. Since then, the gold reserves of the Central Bank of the Russian Federation have not increased by one ounce.
For the period from mid-2019 to mid-2020, the Central Bank of Turkey’s net gold purchases amounted to 269 tonnes, while the Bank of Russia, which was still the leader, increased its gold reserves by 93 tonnes. The Bank of Turkey buys virtually all the gold mined in the country today. At the same time, most of its purchases are made through imports. After the results of the first 7 months of this year, Turkey’s gold imports amounted to 137 tons, which is almost three times higher than the first seven months of 2019. It can be assumed that by the end of 2020, Turkey will enter in the top 5 world gold importers (after India).
Experts believe that the forced purchases of the precious metal by the Bank of Turkey are dictated by Erdogan’s desire to minimize the risks of possible sanctions from the US and its allies (freezing international reserves in dollars, euros and British pounds sterling, blocking international transactions in US dollars and others.). As of September 2020, Turkey ranks 12th in the world in terms of official gold reserves, and the share of the precious metal in Turkey’s international reserves is 44.9%. For comparison: the share of gold in Russia’s international reserves is 24.5%.
President Erdoğan managed to increase his influence over the Bank of Turkey: in the summer of 2019, the Governor of the Central Bank of Turkey, Murat Çetinkayi, was fired and the former Deputy Governor of the Central Bank, Murat Uysal, was appointed in his place. The latter listens more to the recommendations of the country’s president. One of Erdogan’s important recommendations to the Bank of Turkey is to continue the course towards building the country’s gold reserves.
Translation: V. Sergeev
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