Turkey’s gold-selling spree: central bank sells another 63 tonnes of gold in May

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(Kitco News)

Turkey sold an additional 63 tonnes of gold in May after a selling spree of nearly 100 tonnes in April and March.

The latest World Gold Council’s (WGC) data showed that the Central Bank of Turkey offloaded 63 tonnes of gold last month. During the spring months, Turkey’s official gold reserves dropped by 159 tonnes to 428 tonnes.

“This will certainly have a significant impact on overall central bank activity in May,” said WGC’s senior analyst Krishan Gopaul.

Turkey’s selling is part of a notable slowdown in record-breaking official gold purchases worldwide.

Latest data shows the Central Bank of Turkey sold 63 tonnes of #gold in May. Over the last three months, official gold reserves (cent. bank + Treasury) has dropped by 159 tonnes, to 428 tonnes. This will certainly have a significant impact on overall cent. bank activity in May. pic.twitter.com/prHUCQZzkR

— Krishan Gopaul (@KrishanGopaul) June 13, 2023

During the first quarter, central banks added 228 tonnes to their global gold reserves, marking a record pace for the first three months of the year since data collection began in 2000, according to the WGC. However, allocations were down 45% from Q4 2022 figures and marked a second consecutive quarter of declines.

Last year central banks purchased a record 1,078 tonnes of gold, and Turkey was the biggest gold buyer. Its official gold reserves rose by 148 tonnes to 542 tonnes last year, marking the highest level on record.

Analysts pointed to surging domestic demand and a national curb on gold imports as the reasons for the selling spree. “The gold was sold into the domestic market to meet local demand,” Gopaul said.

Turkey’s domestic market has seen a surge in gold demand in the past year as citizens embraced the precious metal as a hedge against inflation and local currency devaluation. At one point in 2022, inflation was running at over 85%.

“Local demand for gold in Turkey is simply a desire to protect their purchasing power from a declining Lira,” William Stack, financial advisor at Stack Financial Services LLC, told Kitco News. “Gold is a great asset to own when you are in a financial pinch because it can be sold when necessary.”

In February, Turkey introduced steps to curb surging gold imports to improve the deficit situation in the country after rising gold demand triggered a jump in gold imports, which weighed heavily on Turkey’s current-account deficit.

Turkey’s decision to sell gold from its reserves is not a losing scenario for the central bank, Stack pointed out.

“One reason Turkey is selling is that gold has risen 10% from a year ago, in dollar terms. In Lira-terms, the gain is more dramatic — 70-85%,” he explained. “If Turkey sold gold internationally, it would weaken the Lira further. But when they sell gold to Turkish residents for Lira, it reduces the amount of Lira in the marketplace, thereby helping to strengthen the currency.”

Other central bank gold activity in May

Another seller last month was the Central Bank of Uzbekistan, which continued to offload some of its precious metal as its reserves fell by another 11 tonnes in May, the WGC said. Year-to-date sales account for 27 tonnes.

The biggest gold buyer in May was the People’s Bank of China, which purchased an additional 16 tonnes — its seventh consecutive increase. China has bought 144 tonnes of gold since its latest shopping spree that began in November, with its total stockpiles now at around 2,092 tonnes.

Also, India bought two tonnes last month, bringing its total gold reserves to 796 tonnes. And the Czech National Bank added another 1.8 tonnes of gold, increasing its reserves to 17 tonnes.