A year of crisis for the lira has kept people in Turkey buying gold at a record pace. Now the appetite for more bullion risks becoming a drag on the currency just as a rally struggles to regain momentum.
In the two weeks after Turkish President Recep Tayyip Erdogan cleared out the leadership ranks blamed for failing to stabilize the lira and draining reserves, Turkish retail investors and firms added US$2.2 billion to their gold holdings, taking them to US$36.4 billion, or almost triple the total last year, Turkish central bank data showed.
People are not relenting in their zeal to own gold, despite a historic turnaround in the lira and this month’s decline in bullion prices, but with gold imports now accounting for most of the current-account deficit, the purchases are getting in the way of mending Turkey’s external imbalances even as authorities increasingly adopt the market-friendly approach that foreign investors crave.
“We see steady demand from local investors for gold even at higher than world prices — unattractive deposit rates and the lack of trust in the lira are the main reasons driving the demand,” said Dogukan Cicek, business development executive at Troy Precious Metals in Istanbul. “A retreat in global gold prices is also seen as an opportunity for those who think gold’s story is far from being over.”
Turkey is one of the biggest consumers of the precious metal worldwide. Turks use gold as protection during times of currency devaluation and inflation, and traditionally gift it for events from weddings to circumcision ceremonies.
Domestic buyers are piling into gold in tandem with greater purchases of foreign exchange (FX). Deposits in hard currencies rose US$34.5 billion to a record US$228.2 billion this year. Locals also added US$3.94 billion to their foreign-exchange savings in the two weeks through Friday last week.
When it comes to gold, local habits are proving hard to break even after the lira soared more than 10 percent in the week following the ouster of the central bank governor and the resignation of Erdogan’s son-in-law as Turkish minister of finance.
However, the currency has grown less steady in the past few days, even after the central bank raised interest rates by the most in more than two years and took other measures to cool a lending boom.
Turkey’s currency has lost 25 percent this year, making it the second-worst performer in emerging markets after the Argentine peso.
While gold slipped this month after dropping for three straight months, it is still up about 19 percent this year after reaching a record in August.
Combined with declines in the lira, the precious metal provided better returns for local investors than bonds or Turkey’s benchmark index of stocks.
Regular Turks are not alone in finding solace in bullion. The central bank is also continuing to accumulate gold reserves, bringing its holdings to an all-time high last month.
Turkey’s gold imports are on track for the most since 2017, according to Borsa Istanbul data.
Given that foreign investors remain wary of Turkish assets, the challenge for Erdogan and his new economy team is to wean people off gold in the hope of inspiring enough confidence in the lira.
“Demanding gold means demanding FX to buy it,” said Evren Kirikoglu, an independent market strategist in Istanbul. “It’s one of the obstacles ahead for the lira’s appreciation.”
From India to China to the US, automakers cannot make vehicles — not that no one wants any, but because a more than US$450 billion industry for semiconductors got blindsided. How did both sides end up here? Over the past two weeks, automakers across the world have bemoaned the shortage of chips. Germany’s Audi, owned by Volkswagen AG, would delay making some of its high-end vehicles because of what chief executive officer Markus Duesmann called a “massive” shortfall in an interview with the Financial Times. The firm has furloughed more than 10,000 workers and reined in production. That is a further blow
MOBILE SMART: The Dimensity 1200 is 22 percent better in terms of performance than its predecessor, and 25 percent more power-efficient, the handset chip designer said MediaTek Inc (聯發科) yesterday unveiled its premium 5G processors — the Dimensity 1200 and Dimensity 1100 — as it vies for a larger slice of the world’s rapidly growing 5G smartphone market. Manufactured using Taiwan Semiconductor Manufacturing Co’s (台積電) 6-nanometer process technology, the Dimensity 1200 processor performs 22 percent better than the previous generation Dimensity 1000+ processor, and is 25 percent more power-efficient, MediaTek said. Chinese smartphone brands Xiaomi Corp (小米) and Realme Mobile Telecommunications (Shenzhen) Co (銳爾覓移動通信) are to be the first adopters of the latest Dimensity chips, the companies said during a virtual media briefing. Xiaomi plans to equip its first
Answering to a reported request by Germany to help address a chip shortage in its auto industry, the Ministry of Economic Affairs (MOEA) yesterday said that it was in talks with domestic chip suppliers. Foreign media over the weekend reported that German Minister of Economic Affairs Peter Altmaier had sent a request to Taipei to ask Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) to cooperate more closely with German automakers to provide microchips and sensors, to bridge a shortage that has emerged over the past few months. The MOEA said that it had not yet received the request and could therefore not elaborate
FOCUS ON FOUNDRIES: An analyst said that some investors would be disappointed because they were expecting a larger announcement of a partnership with TSMC Intel Corp’s incoming chief executive officer Pat Gelsinger on Thursday pledged to regain the company’s lead in chip manufacturing, countering growing calls from some investors to shed that part of its business. “I am confident that the majority of our 2023 products will be manufactured internally,” Gelsinger said. “At the same time, given the breadth of our portfolio, it’s likely that we will expand our use of external foundries for certain technologies and products.” He plans to provide more details after officially taking over the CEO role on Feb. 15, but Gelsinger was clear that Intel is sticking with its once mighty