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Gold in demand as Turkey seeks to shore up lira

Erdoğan

Ahead of next month’s presidential and parliamentary elections Turks have been buying gold as a hedge against the struggling lira and rising interest rates

Turkey has seen an uptake in the purchasing of gold coins as the lira continues to fall in value ahead of a snap parliamentary and presidential elections next month. Last week Bloomberg reported on the rise of gold purchases in Turkey’s markets as a hedge against the falling value of the national currency. “People think there is a trend here and choose to buy gold until uncertainty is out of the way,” one Istanbul trader told the newswire.

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In a recent bid to shore up the lira, Turkish central bankers have increased interest rates from 13.5% to 16.5% and simplified the complex web of interest rates and timings. This has gone someway to reassure investors, initially seeing the lira move up more than 3% against the dollar. However uncertainty over the fate of the broader Turkish economy remains as the authoritarian president Erdoğan (pictured top), seeking a second term as president following 11 years as prime minister, has been outspoken in his opposition to interest rate rises and his belief in currency gaming by the US.

Gold has risen significantly against the lira

Gold has risen significantly against the lira. Source: Bloomberg

Such a move was seen as a long time coming by many investors who are wary of how the lira has struggled this year, reportedly losing 16% of its value against the dollar in the last month alone. To allay the flight into foreign currency and alternatives president Erdoğan last week called on Turks to move money held outside the native currency back into lira, according to regional newsource Hurriyet Daily News.

The Turkish leader also discussed the importance of using local currencies with Russia’s president Putin in a phone call covering Syria, security and energy markets.

Searching for solidity

Last month Glint reported on the alleged repatriation of Turkish gold as the reality of a falling lira came to bite on the Turkish economy. In Q1 of 2018 the World Gold Council noted Turkish central bank appetite for gold had dominated global demand, along with that of Kazakhstan and Russia. Current Turkish national holdings are estimated at 564.8 tonnes.

The Istanbul Gold Exchange also highlighted individual consumer demand in Turkey, saying the first four months of 2018 had seen the importing of 118 metric tons of bullion, worth approximately $5 billion.

A local trader named as Tekin Firat, told Bloomberg “Turkish people love gold. People think that it will never lose in the long run.”

Turkey has a rich gold heritage; it is believed the ancient kingdom of Lydia was the first in the world to use gold as money, minting gold coinage almost 3,000 years ago.

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