Turkish households are estimated to hold around $500 billion worth of gold, according to Mustafa Atayık, President of the Istanbul Chamber of Jewellers. This massive figure reflects individuals' lack of confidence in the local currency and financial institutions, leading them to hold gold as a safe haven asset.
Atayık has proposed the creation of specialized "gold banks" aimed at attracting this hoarded gold and integrating it into the economic cycle. These banks, supported by the government and managed in partnership with jewelers, could help regulate the gold market and reduce reliance on imports.
The Turkish economy faces significant challenges regarding gold smuggling, which has been exacerbated by import restrictions. These restrictions, aimed at reducing the trade deficit, have led to higher domestic gold prices compared to international prices, encouraging smuggling.
In March 2024, Turkish authorities seized significant quantities of smuggled gold, underscoring the scale of the problem. This surge in smuggling reflects the significant price difference between the domestic and international markets, reaching up to 7%.
Turkey is trying to increase its domestic gold production to reduce reliance on imports. With 18 mines under development, increasing domestic production could help meet growing demand and reduce pressure on foreign currency.
However, domestic production alone may not be enough to meet growing demand, especially in light of persistent inflation and economic instability.
Turkey faces significant economic challenges, including high inflation rates and the depreciation of the Turkish Lira. These challenges are driving individuals to look for ways to preserve the value of their savings, and gold is one of the most popular options.
Government policies, such as restrictions on gold imports, further complicate the situation and lead to higher domestic prices and encourage smuggling. The Turkish government must adopt balanced policies that aim to regulate the gold market and meet domestic demand without harming the national economy.
Note: This analysis is provided for informational purposes only and does not constitute investment advice.
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