Turkey Eyes $135 Billion Gold Reserves for Lira Defense

Turkey’s central bank is considering using part of its sizeable gold stockpile to stabilize the lira as the currency comes under renewed pressure from the war in Iran, according to Bloomberg.

The lira has faced mounting volatility as soaring energy prices and geopolitical uncertainty strain the country’s already fragile economic position.

Bloomberg said officials have discussed the possibility of conducting gold-for-foreign currency swap transactions in the London market.

Turkey has amassed significant official gold holdings over the past decade, with reserves worth roughly $135 billion as of early March.

About $30 billion of that sits at the Bank of England, which could be mobilized “for FX intervention purposes without logistical constraints,” JPMorgan economist Fatih Akcelik said in a note cited by Bloomberg.

Turkey is exposed to the fallout from the Iran conflict because it imports nearly all its oil and gas.
With inflation running at 31.5% in February, officials have relied on maintaining “real” lira appreciation to anchor prices, a strategy Bloomberg reported has become far more costly as reserves dwindle and import costs spike.

Policymakers have already tightened liquidity, pushed up funding costs and leaned on state-run lenders to support the currency.

Bloomberg reported that the central bank has also sold about $16 billion of foreign-currency bonds, including U.S. Treasuries, in recent weeks.

Signs of strain are emerging on the ground as well, according to the report, which states that traders in Istanbul’s Grand Bazaar have begun selling dollars at a premium to the interbank rate, pointing to a rise in local demand for hard currency.

Despite gold being seen as a safe-haven asset, the yellow metal has declined significantly since the onset of the conflict in the Middle East. The spot price is currently trading around the $4,380 mark, having fallen from around $5,419 on March 2nd.