Turkey turns into world’s biggest gold buyer on currency concerns

Turkey has overtaken Russia to become the world’s largest purchaser of gold due to concerns about ties with the United States and access to dollar settlements, the Nikkei Asian Review reported on Tuesday. The country roughly tripled its gold buying to 148 tonnes between January and May, while Russia reduced its purchases by 60 percent to 28 tonnes, according to the news website.

Turkey has seen its foreign-currency income dwindle, raising concerns about financial stability. Tourist spending, a key driver of its economic growth in recent years and a vital source of foreign exchange, has slumped to almost zero during the coronavirus outbreak. The lira hit an all-time low of 7.269 per dollar in early May.”There is little economic rationale for Turkey to stretch itself thin to buy gold right now,” said Kota Hirayama of SMBC Nikko Securities. The country would have an easier time defending its currency against further depreciation if it simply held on to its foreign-currency reserves, he said.

Turkey may be buying gold because relations with the United States have soured in recent years, particularly after its invasion of Syria to battle Kurdish militants allied with U.S. military in the fight against Islamic State (ISIS) and its detention of a U.S. pastor on terrorism charges that provoked economic sanctions from Washington and a currency crisis in 2018. Should ties with the U.S. worsen further and the United States imposes tougher sanctions, Turkey risks being shut out of the settlement system for U.S. dollars, the Nikkei Asian Review said. Last week, U.S. President Donald Trump signed a bill blocking banks in China from procuring dollars, it said.

The U.S. Federal Reserve has rejected a Turkish request for liquidity swap lines to help bolster the lira in a warning sign that Turkey could face the same fate as China, the news website reported. “It’s possible that it fuelled the Turks’ anxiety that it cannot rely on the U.S. in an emergency,” Hirayama said.

Source: Ahval