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Turkey has no cure for a gold craze that leaves lira vulnerable

Section: Daily Dispatches

By Asli Kandemir and Ugur Yilmaz
Bloomberg News
Thursday, November 26, 2020

A year of crisis for the lira has kept Turks 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 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 $2.2 billion to their gold holdings, taking them to $36.4 billion, or almost triple the total last year, central bank data showed.

... Dispatch continues below ...


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Turks aren’t 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." ...

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