Analysts think that the recent selling pressure on gold may have been made worse by the fact that central banks had to sell their gold stocks to get cash quickly because of the effects of the U.S.-Israeli war with Iran on the world economy and financial markets.
Bloomberg says that Turkey’s central bank is once again using its official gold reserves, which seems to back up what people were thinking. Bloomberg said that in the last two weeks, Turkey’s official gold stocks have dropped by almost 59 tonnes. The news came from the central bank.
People who know about the country’s foreign reserves say that some of the gold was sold directly, but most of it was used to secure foreign currency or liras through swap deals.
Central banks trade gold for money under these agreements, with the promise to trade back for the gold at a later point.
The World Gold Council says that at the end of January, Turkey’s central bank had 603 tonnes of gold worth $135 billion. It is also one of the central banks that has bought the most in the last few years. This is not the first time that the central bank has turned its public reserves into cash.
Between March and May 2023, Turkey sold 159 tons of gold. At that time, the country had inflation that had never been seen before, and the demand for gold in the country was causing the current account gap to reach all-time highs. The central bank sold its gold to the people to try to lower the debt.
But once the inflation problem subsided, Turkey began to rebuild its reserves, getting back the money it had lost by the middle of last year.
Even though Turkey might be the first country to sell its gold for cash in this unstable economy, it might not be the only one. The National Bank of Poland has been the biggest buyer of gold among central banks around the world for the past two years. It has hinted that it might be willing to sell its gold to help the country’s military buildup.
Early in March, Adam Glapinski, Governor of Poland’s central bank, laid out a plan to sell the country’s gold reserves to raise up to $13 billion, which would be used to double the country’s defense budget.
Rob Haworth, Senior Investment Strategist at U.S. Bank Wealth Management, told Kitco News recently that there is a short-term chance that central banks will sell their gold to get cash quickly in case of an emergency.
At the very least, he said, central banks probably won’t buy gold right now because they are busy trying to stop prices from going up.
He said, “It’s not that central banks care about prices.” “It’s not like a hedge fund that marks to market how much gold they have.” But because of the needs of society right now, they need other things that are more valuable and harder to find.
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