Turkey, Gold and US Dollar Hegemony

Introduction

Buy Gold and Lira, Sell Dollars To End “Economic Sabotage” – PM of Turkey

Gold Imports to Turkey Surge 688% In December

‘Tough Turkey’ today

Affinity for gold to save the day?

Central bank gold demand

Personal accumulation

Country’s gold reserves

Turkey Iran gold conduit

Axis of Evil to Axis of Gold

Conclusion: Gold as an insurance policy

Introduction

With a ‘Hard Brexit’ looking more likely and Trump’s inauguration this week, 2017 is well and truly under way.

What we expect the year to hold is probably not even half of what it really will. But from what we know, the upcoming French and German elections, referendums, geopolitical crises, steps towards reverse globalisation and a third of global government debt yielding negative interest rates, governments are already prompting central banks and investors to turn to the one asset that has survived millennia of financial and monetary crises.

One that is highly liquid and convertible into other currencies – gold.

turkey-gold-imports

Whilst mining output remains relatively flat and we are at peak gold, Western central banks have stopped gold sales, large emerging market economies continue to increase their gold reserves. China, Russia (both top gold purchasers in 2016) and now Turkey, are the notable players.

Turkey’s President Recep Tayyip Erdogan reminded us of this when he called on his citizens to buy gold:

“Those who keep dollar or Euro currency under their mattresses should come and turn them into Liras or gold.”

This has been met by such support that, not only did Turkish gold imports surge 688% in December, to reach their highest monthly level in two years but, according to Reuters, “fervent supporters have offered free haircuts, fish and even tombstones to those who can prove they have done so.”

As a result, in December 2016 imports reached 36.7 tonnes, significantly more than the 4.65 tonnes seen in the same month in 2015. This accounted for more than one-third of the country’s annual imports of 106.2 tonnes, more than double 48.7 tonnes in 2015.

turkish-consumer-demand

Before 1993, the Turkish gold market was not fully liberalised, since then the World Gold Council reports that they have seen ‘rapid growth of the sector’ and this is across all areas relevant to the physical gold market.

Encouragement to buy gold from the likes of Prime Minister Erdogan, who is very popular with huge swathes of the electorate, is not just a selfless act to protect citizens’ wealth during uncertain times in Turkey, the Middle East and across the globe. There are several factors at play here.

These factors should be considered with Turkey’s unique role in the global gold market, in mind. There is no country positioned in such a way (both geographically and politically) that plays all three major roles of producer, buyer and conduit, in the world of gold.

‘Tough Turkey’ today

Since 1950 the country has experienced at least one economic crisis per decade and today it is no secret that Turkey is struggling under both economic and political pressures. Along with heightened security concerns that have damaged the much relied-upon tourism sector, economic growth is sluggish, inflation is rising and a strong US dollar is not helping matters.

Despite this, Erdogan has recently tried to prevent the central bank from increasing interest rates.

All measures since taken by the central bank in order to boost liquidity in the system have lead to short-lived spikes in the Turkish lira. The Fitch-rating review on the 27th January is expected to downgrade the country’s credit rating to +BBB, something not even the failed coup made happen.

The push for support for gold is two-fold, first it is an attempt to boost trust in the central banking system which is in increasingly dire straights, the second is to support the underlying currency which is central to the ̵