Gold is strategically important since it maintains its purchasing power in all circumstances. It is globally accepted as a reliable ‘value’, both in politically and economically unstable economies in countries.
According to renowned Turkish economist, Mahfi Eğilmez, Turkish people are selling their foreign currency to buy gold and some people are even considering selling their cars and homes to buy gold.
Hasan Ayhan, who is 57 years old, told Reuters: “I think it is the best investment right now, so I converted my dollars to buy gold”. He added: “I could take out my lira and buy gold with it too, but I’m afraid to go to the bank right now because of the coronavirus outbreak”.
Ayhan bought gold on 6 August. A day later, the lira declined to a historic low, and it has continued to decline ever since.
Turks have traditionally used gold as their savings and there may be as much as 5,000 tonnes of it “under mattresses”, with more added after the recent buying spree, Mehmet Ali Yıldırımtürk, deputy head of an Istanbul gold shops association, said.
Last month, Turkey’s Central Bank (CBRT) overtook Russia as the world’s largest purchaser of gold. Turkey’s annual inflation rate reached nearly 12%, according to official figures. If the government cannot restore confidence in the currency which has declined by approximately 20% this year, the risk of inflation and a debt burden turning into a major crisis is very real and may even eclipse the coronavirus crisis in financial terms, argue some analysts.
According to experts, there are growing concerns about the significant decline of the CBRT’s foreign currency reserves. Investors fear a possible balance of payments crisis. Through Turkish state banks, which face a “shortfall” in foreign exchange by $12 billion, the central bank has sold more than $110 billion since last year, the data indicates. The official data shows that the Bank’s gross FX reserves decreased from $81 billion to 51$ billion this year.