500 billion dollars worth of Gold is sleeping under the bed!

The president of the Istanbul Jewelers’ Chamber in Turkey, Mustafa Atayık, stated that Turkish households hold at least 500 billion dollars’ worth of Gold.

Due to a lack of trust in currency and Financial Institutions, people choose to keep Gold at home. He proposed establishing a ‘Gold Bank’ to integrate the Gold stored in private homes into the economic system. At the same time, Turkey faces a serious problem of Gold smuggling, and the government’s import quota policy has exacerbated the supply shortage.

500 billion dollars worth of Gold has failed to enter the economic cycle.

In a recent report by the mainstream Turkish newspaper Hurriyet, Atayık estimated that the total amount of Gold held by private households nationwide is close to 5000 tons.

He pointed out that, ‘If we calculate at about 0.107 million dollars per kilogram of Gold, the total value of this Gold is about 500 billion dollars or even more.’ He attributed the reason for the public keeping Gold at home to ‘a lack of trust in the local currency and Financial Institutions.’

To this end, Atayık proposed the establishment of a ‘Gold Bank’ serving citizens. This specialized bank will be led by the Istanbul Jewelers’ Chamber, possess public corporate status, allow jewelers to join as members in a cooperative manner, use Gold valuation as a source of capital, and gain government support to standardize and regulate Gold trading, thus promoting the Inflow of ‘under-the-mattress Gold’ into the formal economic system.

He also pointed out that currently, less than half of the Gold imported into Turkey flows into the jewelry industry, ‘the jewelry industry has only used about 40% to 50% of the imported Gold.’

Atayik cited data from the Golden Minerals Association, stating that as of 2023, Turkey has completed feasibility studies and license applications for 18 mining areas.

“The domestic production in 2023 is 35.5 tons, and 32.2 tons in 2024. The more we can increase domestic production and gold recovery, the more we can reduce dependence on imports, avoid Forex Outflow, and meet the local demand for raw materials.”

The serious domestic premium has led to a surge in smuggling.

Faced with years of continuous currency depreciation and high inflation, Turkey’s gold smuggling problem has become increasingly serious in recent years.

In March 2024, Mackenzie Crow reported: “Since the beginning of this year, Turkish security forces have seized about 350 kilograms of smuggled gold at the border, a figure that has exceeded 60% of the total seized for the entire year of 2023.”

One significant case occurred in the eastern province of Van, bordering Iran, where authorities found 88 kilograms of gold bars hidden under a car seat, with a total value exceeding 6 million dollars.

Turkey’s extreme demand for gold has driven local gold prices to be 7% higher than international spot prices, with a premium of 5,000 dollars per kilogram. Crow pointed out that this price difference has attracted speculators and organized crime groups.

“The fundamental reason for the surge in smuggling is the serious domestic gold premium, which stems from strong demand on the retail end and, on the other hand, government restrictions on gold imports.”

Although during times of economic instability, Turks have always viewed Gold as a store of value, the current continuous devaluation of the currency and soaring inflation have pushed Gold demand to unprecedented levels.

Retail demand has surged, with the mint working overtime until midnight.

President Recep Tayyip Erdogan’s attempt to address the Gold issue has instead exacerbated the predicament.

“The government’s quota system for Gold bar imports, aimed at reducing the current account deficit, has intensified supply constraints, further driving up local Gold price premiums,” Klau wrote. “Despite these restrictions, private demand remains strong, driven by negative real interest rates, persistently high inflation, and political uncertainty.”

To meet the skyrocketing domestic demand, the Turkish state mint is working overtime to increase production capacity. Mint Deputy General Manager Mehmet Hekim stated, “The state mint has a monopoly on producing the standard ‘Republic Gold Coins’ and is currently operating with two shifts, working until 1 a.m. to satisfy public demand.” As of last Wednesday, the average daily production has been raised to 700 to 800 kilograms.

However, according to Mehmet Ali Yildirimturk, Vice President of the Istanbul Jewelers, Goldsmiths, and Exchange Association, even with this expansion, local market demands cannot be met. “Now hardly anyone is selling Gold,” he told Klau, “A large influx of small-scale buyers has entered the market, resulting in a surge in demand and prices have skyrocketed accordingly.”

The problem is that the government is simultaneously squeezing imports while trying to meet skyrocketing domestic demand, creating a serious contradiction. “Despite the surge in local demand, Turkey’s Gold imports have declined for the fourth consecutive month,” the article points out.

“Under the tightening monetary policy and the restrictions on Gold imports, the government is trying to stabilize the economy, but this also highlights the use of Gold as a traditional…”Safe haven AssetsThe real challenges faced at the time.