According to Mustafa Atayık, Chairman of the Istanbul Perilla Exchange (İKO), Turks are holding about 5,000 tons of gold at home, equivalent to $500 billion at market prices. This is an estimated figure based on the world gold price of about 107,000 USD/kg.
Mr. Atayık said that the main reason why people store gold instead of depositing money in banks is due to loss of confidence in the local currency lira and the financial system, especially in the context of soaring inflation and prolonged economic instability.
We need a special mechanism to bring this amount of gold back to the financial system, said Mr. Atayık, and proposed the establishment of a Gold Bank in the form of a public limited liability company, allowing jewelry businesses to participate, raise capital in gold and receive support from the government.
This initiative aims to "standronize" gold flows, help reduce imports and limit foreign currency losses.
Currently, only 40-50% of imported gold is used in the jewelry industry, the rest is mainly stored. Although Turkey has 18 gold mines that have completed exploration and licensing, domestic mining output will still reach only 35.5 tons in 2023 and 32.2 tons in 2024, not enough to meet the skyrocketing domestic consumption demand.
This imbalance between supply and demand has pushed domestic gold prices up to 7% higher than international prices, equivalent to about 5,000 USD per kg. This leads to an explosion of gold smuggling.
In the first half of 2024, Turkish authorities seized 350kg of smuggled gold, more than 60% more than the whole year. A typical case occurred in Van province, where police discovered 88kg of gold bars worth more than 6 million USD hidden under the car seat.
In an effort to meet the sudden increase in gold demand, the Turkish National Coal mining Workshop - which exclusively produces Republic Gold standard gold - is working overtime until 1 am, raising daily output to 700-800kg.
However, according to Mehmet Ali Yildirimturk, Vice President of the Istanbul Jewelry Association, the market is lacking sellers, as most people buy gold to store, not to trade.
Almost no sellers. When retail demand is too large, prices will be pushed up sharply" - Mr. Yildirimturk commented.
This situation is further aggravated by the government's application of gold import quotas to reduce the balance of payments deficit. However, this measure has further tightened supply, pushing domestic gold prices higher, creating a large price difference - fertile land for smuggling and speculation activities.
Meanwhile, tightening monetary policy, negative real interest rates and inflationary concerns have caused people to turn their backs on the domestic currency, continuing to rush into gold reserves.
A vicious cycle is forming: Gold is being hidden carefully, supply is lacking, prices increase, people buy more and store more, and the economy has more difficulty recovering liquidity.
