Amid the impact of the Iran conflict, Turkey has utilized its gold reserves at a scale far exceeding market expectations. Data cited on Thursday revealed that the Turkish central bank's gold reserves dropped by over 118 tonnes in the past two weeks, valued at close to $20 billion. Last week alone, reserves fell sharply by 69.1 tonnes to 702.5 tonnes, marking the largest weekly decline since at least 2013.
According to estimates from three banking sources, approximately 26 tonnes of gold were directly sold last week, with an additional 42 tonnes utilized through swap transactions. The preceding week saw a reduction of 49.3 tonnes. The Turkish central bank declined to comment on these estimates.
This move signifies a major shift in Turkey's policy. Over the past decade, Turkey has been one of the world's most active gold buyers. Analysis indicates that the scale of this sell-off is equivalent to about 15% of its total gold inventory, matching the reserves accumulated over the past six years. Following the outbreak of the Iran war, global energy prices surged, leading to a sharp increase in foreign exchange liquidity needs and pressure on the lira, forcing authorities to heavily utilize gold reserves to stabilize the currency and meet energy import payment demands.
Despite such a large and concentrated sell-off, gold prices did not experience a corresponding decline, raising market questions about which buyers are continuously absorbing this substantial volume of gold sold by Turkey.
While the decline is the largest in a decade, it is important to note the role of "gold swaps." Last week's 69.1-tonne drop in Turkish gold reserves is an unprecedented decline since the bank began publishing international standard gold reserve data in 2013. Iris Cibre, founder of Istanbul-based Phoenix Consultancy, estimated that Turkish officials have utilized a significant portion of the central bank's approximately $135 billion in gold reserves through sales and swap arrangements. She estimated cumulative sales at around 58.4 tonnes, with over half completed via overseas "gold-for-foreign-exchange" swaps. Independent calculations from three banking sources indicated that about 26 tonnes of gold were directly sold last week, with another 42 tonnes used in swap transactions.
As previously analyzed, the essence of a gold swap is "exchanging gold for foreign currency, with redemption at maturity"—it is not a "sale" but a "pawn." The central bank transfers gold to a counterparty (typically a primary dealer) in exchange for an equivalent amount of U.S. dollars, while signing a forward contract to repurchase the gold at a slightly higher price in the future. It is a form of short-term financing, not a permanent liquidation.
The central bank's choice of swaps over outright sales involves at least three considerations. First, it preserves long-term holdings. If the oil price surge is judged to be a temporary shock, swaps can address immediate needs while allowing for future gold redemption, avoiding the loss of a decade's accumulation. Second, it minimizes the impact on gold prices. Dumping 60 tonnes of gold directly could trigger a cliff-like price drop, devaluing the remaining $100+ billion in gold reserves. Swaps, conducted discreetly in over-the-counter markets, have a much smaller impact. Third, it provides a buffer in domestic politics. Gold is seen as an "inflation-resistant totem" among the Turkish public; announcing large-scale sales could easily cause panic, whereas swaps can maintain a degree of technical ambiguity.
The ability to complete this operation rapidly within two weeks was facilitated by a key preparatory step: Turkey held approximately 111 tonnes of gold, valued around $30 billion, at the Bank of England. This gold could be used for foreign exchange intervention without logistical constraints—no cross-border transport of physical gold was needed, allowing for direct pledging and liquidation within the City of London.
The driving forces behind Turkey's massive gold sell-off are two overlapping pressures: defending the lira and financing energy imports. After the Iran war began, global energy prices climbed significantly. As an economy highly dependent on energy imports, Turkey faced sharply increased foreign exchange payment pressures. Simultaneously, rising market risk aversion put downward pressure on the lira, compelling the central bank to intensify intervention efforts, including not only the use of gold reserves but also increased direct foreign exchange sales and other market operations.
This situation poses a direct threat to Turkey's "disinflation" strategy, the core of which relies on maintaining lira stability or a gradual, controlled depreciation path, often achieved through state bank foreign exchange interventions. However, rising energy costs and increased dollar demand are continuously eroding the sustainability of this framework.
In response to external质疑 regarding the sharp decline in gold reserves, Turkish Central Bank Governor Fatih Karahan publicly defended the operations before attending an investor meeting in London this week. In an interview with the state-run Anadolu Agency, Karahan stated that the central bank is adopting an "active, flexible, and controlled" approach to reserve management and liquidity tools, implying that this round of gold sales is a tactical adjustment within the established policy framework, not a passive reaction to a crisis.
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