(Kitco News) - Analysts have been speculating that gold’s recent selling pressure may have been exacerbated by central banks forced to monetize their gold holdings for emergency liquidity as the U.S.-Israel war with Iran impacts the global economy and financial markets.
That speculation is starting to be confirmed, as Bloomberg reports that Turkey’s central bank is once again tapping into its official gold reserves. Quoting central bank data, Bloomberg said that Turkey’s official gold reserves have declined by nearly 59 tonnes in the last two weeks.
According to people familiar with the nation’s foreign reserves, some of the gold was sold outright, while most of it was used to secure foreign exchange or liras via swap agreements.
Under these agreements, central banks exchange gold for currency, with an agreement to trade back for the gold at a later date.
According to data from the World Gold Council, at the end of January, Turkey’s central bank held 603 tonnes of gold, valued at $135 billion. It has also been one of the most aggressive central bank buyers in recent years; however, this is not the first time the central bank has monetized its official reserves.
In 2023, Turkey sold 159 tonnes of gold between March and May. At that time, the nation saw unprecedented inflation, and domestic demand for gold was driving the government’s current account deficit to record levels. In an attempt to lower the deficit, the central bank sold its gold to citizens.
However, once the inflation crisis cooled, Turkey started rebuilding its reserves, recovering what it sold by the middle of last year.
While Turkey might be the first nation to monetize its gold in this volatile economic environment, it might not be alone. The National Bank of Poland, which has been the biggest buyer among the world’s central banks for the last two years, has signaled that it would be open to monetizing its gold to support the nation’s military buildup.
In early March, Adam Glapinski, Governor of Poland’s central bank, outlined a proposal to raise as much as $13 billion from the sale of the country’s gold reserves to finance a doubling of its defense budget.
He added that, at the very least, central banks are unlikely to buy gold in the current environment as they focus on trying to tamp down rising inflation.
“It’s not that central banks are price sensitive,” he said. “They're not a hedge fund that marks to market the value of their gold reserves. But right now, because of society’s needs, they have a call for other assets that are more important and scarcer at this time.”
