Major shift by the big gold buyer! The Central Bank of Turkey sold $8 billion worth of gold during the Iran war.

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Within two weeks after the outbreak of the Iran war, the Turkish central bank sold and used about 60 tons of gold through swap operations, valued at over $8 billion, putting downward pressure on gold prices.

According to the latest published data, the Turkish central bank’s gold reserves decreased by 6 tons in the week of March 13 and dropped another 52.4 tons in the week of March 20, indicating a significant decline in gold reserves.

According to informed sources, some of this was sold directly, while most was used for foreign exchange or lira liquidity through swap agreements:

According to Iris Cibre, founder of Istanbul-based Phoenix Consultancy, Turkish officials utilized about $135 billion in gold reserves through sales and gold swap arrangements to meet liquidity needs and stabilize the domestic market. She estimates the total sold is 58.4 tons, with more than half completed via overseas "gold-for-foreign-exchange" swaps.

This move comes at a time when Turkey’s “disinflation” strategy is under pressure. The strategy relies heavily on maintaining the stability or gradual depreciation of the lira’s exchange rate, usually by intervening in the foreign exchange market through state-owned banks. However, since the outbreak of the conflict in Iran, rising energy import costs and increased demand for dollars have made the strategy harder to sustain.

The scale exceeds the outflow of gold ETFs over the same period. According to Bloomberg data, gold ETFs saw about 43 tons of outflow during the same two weeks. ETFs are one of the main ways both institutional and retail investors allocate gold.

Bloomberg reported on Tuesday that the Turkish central bank is discussing using gold reserves for trades on the London market to prevent the lira from further sharp depreciation due to the war. This news briefly turned global spot gold prices from rising to falling that day.

This sale marks a significant policy shift for Turkey. For the past decade, Turkey has been one of the world’s most aggressive buyers of gold, aiming to reduce reliance on dollar-denominated assets. The price of gold has dropped about 15% this month; previously, due to sharp increases since last year, investors have been taking profits.

Daniel Ghali, a commodities strategist at TD Securities, said the economic shock from the Iran war may reduce demand for gold from some central banks, while forcing others to sell gold reserves to fulfill dollar-denominated obligations. Direct gold sales are not impossible, but the overall trend of central banks increasing gold holdings is expected to slow significantly in the short term.

For central banks, simultaneously selling spot gold and agreeing to repurchase it via swap agreements in the future is not uncommon; this is essentially using gold as collateral to obtain low-cost dollar financing.

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