Turkey, in recent years demonstrates ever-increasing activity in the international arena, leadership claims in the Muslim world and readiness to intervene in several conflicts simultaneously with unpredictable consequences. Yet, despite its growing influence in regional affaires, Turkey is unable to show adequate economic achievements. This often allows Turkey's opponents to assume that the "new Ottomans" are getting ahead, and will soon overtax themselves. Analysis of the role that gold plays in the economic and social life of Turkey suggests that the usual macroeconomic indicators may not reflect the real situation, and the state of the country's economic base. The presence of serious reserves of the precious metal in the hands of Turkish citizens and the ubiquitous habit of using gold as the currency may indicate the presence of a serious anti-crisis mechanism in Turkish society on the eve of the expected global economic shakeout.
Gold and Lira
The recent Turkish lira decline against the US dollar and the euro has reached historic benchmarks. For the first time in modern history, more than 8 lira is given per dollar (8.34 as of November 2, 2020), and according to most experts, as well as the country's population, who is actively buying up hard currency, this is not the end of the line. However, much more important than foreign currency, the traditional hedging and long-term store of funds instrument in Turkey is gold - in the form of coins, bars and jewelry. Turkey is in the top ten countries in the world for the consumption of gold, using about 72 metric tons of the precious metal annually.
Gold traditionally plays a significant role, both in the economy and in the daily life of Turkish citizens. It has been used for generations as a defensive measure against inflation and is an accustomed and popular financial and economic tool. Turkey is among the world leaders in the consumption of gold for jewelry purposes, as well as in the production of coins. Turkey along with China, India and Southeast Asia, account for a significant portion of the world's demand for gold. In this context, according to the former director general of the World Gold Council Turkish branch, Murat Akman, in Turkey "it is impossible not to know the price of gold, not to wear it."
The traditional Ottoman standard used in modern Turkey makes it difficult for Turkish coins to enter the international market, where the Troy ounce (31.1 grams of pure metal) and its shares are most often used. The most popular Turkish gold coin is the “ziynet”. It is equipped with "ears" for use as jewellery in pendants, monisto, bracelets, etc. Small editions of commemorative collection coins of proven quality are also regularly minted (coins of the highest standard and minting quality, inconvenient for active use in economic life).
The Istanbul Gold Refinery has created an alternative to the investment coins minted by the Mint, in the form of gold and silver bars produced under the brand name, “Gramaltın” - gold bars weighing from 0.5 to 100 grams, and silver bars from 2.5 to 100 grams. 999 samples can be purchased at Turkish Post offices and through vending machines.
In addition to coins and bars, the Turkish population actively uses jewelry as a means of accumulation and investment. For example, gold bracelets, quite simple from an artistic point of view, can be bought or sold without any formalities and difficulties in any jewelry store, or in gold rows in the market, at the price of precious metal.
The supply of gold demand in Turkey is partly covered by local mining. Until the 2000s gold mining in the country was carried out on a small scale. In 2004 and 2010 amendments to the Turkish Mining Law were adopted, which significantly simplified exploration and mining operations, and also attracted investments in gold mining. In 2005, gold production increased to 5 tons, in 2010 - up to 17 tons per year. In 2019, gold production in Turkey reached a record 38 tons.
Reserves
According to the Ministry of Energy and Natural Resources, Turkey's gold reserves are 840 tons. There are two large explored gold deposits (with resources and reserves of more than 300 tons): the largest mine in Europe, "Kışladağ," (in the province of Uşak, 180 km east of İzmir), and "öpler" (in the province of Erzincan). There are also many smaller deposits. The cost of gold mining in Turkey is lower than the world industry average, as most of the Turkish mines are opencast. The country's government supports production by creating investment attractive conditions. The only buyer of the mined precious metal is the Central Bank of Turkey.
The popularity of gold as a financial instrument in Turkey has led to the fact that at the moment the volume of the precious metal owned by the population is unknown, but it is assumed that it is at least 5-6 thousand tons, which is comparable to 40% of the country's GDP. According to other estimates, this figure may turn out to be much higher; this issue among experts is a subject of discussion and is the object of close attention and regulation by the Turkish leadership. Authorities regularly try to involve assets from hoardings to the country's economic state-controlled turnover.
In 2017, the President of Turkey, R.T. Erdogan, spoke of the need to "get rid of the pressure of the exchange rate and use gold against the dollar." After that, the Central Bank of Turkey and a number of private banks withdrew their gold reserves from the United States and Great Britain. In total, Turkey returned 220 tons of gold from abroad.
Turkey's gold reserves have grown significantly in 2020. In the spring and summer of this year, the Central Bank of Turkey was the world's leader in external purchases of gold. The acquisition of precious metal by the population is also not declining. Amid inflation, the Turks are actively buying up coins, bars and jewelry. Gold traders report that in recent months virtually no one comes to sell gold; there are only buyers. It is significant that in the summer of 2020, the Turks actively bought bars of half a gram of gold, which indicates a decrease in the financial capabilities of the population amid the crisis.
Gold and the financial system
In 2011, banks began to accept gold products from the population to open "gold deposits" on the Turkish Central Bank order. This made it possible to receive interest income from gold and significantly improved the banking system. Since then, however, only about 100 tons of gold have been moved from hoardings to the vaults of banks. Since 2016, banks began to accept not only "standard" gold, but also scrap. The Istanbul Gold Factory provides expert services in evaluating scrap gold, accepting it for refining and returning it to banks in the form of standard bars. In addition, its management has come up with a proposal for an amendment in legislation to allow individuals to receive back gold placed in banks in the form of physical precious metal. Today the depositor is entitled to receive only the cash equivalent of his bullion at the current exchange rate.
It is also planned to allow jewelry firms to mediate in the sphere of attracting the population's reserves for placing precious metals in banks. The Istanbul Gold Mining Plant has developed the population's gold operations program, and 70 jewelry firms from two dozen regions of Turkey have already been admitted to implement it. In the future, it is planned to cover the territory of 81 regions (all provinces of the country), about a thousand jewelry firms will be involved in this work.
In 2014, in order to further revitalize the spot gold market, the Turkish Government decided to eliminate the VAT levy on operations with gold bars. Inflationary processes in Turkey are usually reflected in the media in the form of tablets, indicating the ratio of the minimum wage and a quarter of the golden lira. For example, in 2003 having the minimum wage you could buy 14.45 quarters, in 2007 - 9.5, in 2012 - 5.0, in 2019 - 4.4, and in 2020 - only 3.3, just a quarter of a golden lira.
Turkey's purchase of a significant amount of gold on the world market in 2020, despite the most serious challenges the country's economic leadership is facing, suggests that at the governmental level Turkey also expects to use gold as a financial stability guarantee in the coming economic crisis.
