The rise in deposit interest affected the demand for gold. Ercan Özboyacı, Chairman of the Istanbul Chamber of Commerce (ITO) Jewelry Profession Committee said that although it remains low compared to gold, investments are turning to interest, and that foreign demand has bottomed out as well as domestic demand. As demand fell, the number of gold mintings of the Mint fell to the lowest level of the last two years.
The Mint minted 478 thousand pieces of republic gold in July, the lowest monthly mintage in the last two years. However, due to the uncertainty before the elections, the number of mintings had reached the highest level since 2021 with 3.8 million in April. Ercan Özboyacı, Chairman of the ITO Jewelry Profession Committee, who operates in the Grand Bazaar, said, “After the increasing interest rates, the savings preference of households changed and the demand for gold almost bottomed out. The arrival of low-budget tourists also negatively affected the sector. Foreigners do not buy jewelry either.”
Gold gained 40 percent in value
Safe haven gold has been on a significant rise since the beginning of the year. Although it declined compared to the first day of September, gold, which was TRY 1,953 at the beginning of the year, gained 40.14 percent. Gram gold price increased by 64.34 percent in the last year. Deposit interest rates, on the other hand, vary according to the bank and maturity, but according to Central Bank data, they are currently close to 60 percent. However, gold prices carry more risk than deposit interest, as they find direction according to both global market and domestic economic developments. Özboyacı explained that investors who do not want to take risks in this sense are attracted to the high income of deposit interest.
“Foreigners fled after quota”
Another reason for the decline in demand for gold was the quota imposed on gold imports in August last year, which widened the price gap with abroad. The difference, which was as high as USD 5,000 per kg before the elections, is currently around USD 2,000. In other words, domestic or foreign consumers can access gold in Turkey at a much higher price than abroad. This has a negative impact, especially on foreign demand. Özboyacı said, “Currently, the difference is USD 2,000. Although there is no excessive demand for gold, there is still a difference. Our exporters are very worried about the differences remaining at this level and the possibility of increasing before the fair to be held in October.”
Enes Uyanık, General Manager of Önder Precious Metals operating in Kuyumcukent, stated that the demand for physical gold is low and said, “Both domestic and foreigners do not buy gold. Foreigners do not buy gold because of the price difference, but the situation is not very different for locals. Gold prices have risen a lot, but high interest rates are more attractive to people in this period. Although gold offers a higher return, it carries a risk. This makes interest, which offers a more guaranteed return, attractive. There will be a revival in the coming period when interest rates fall. However, as long as interest rates remain like this, people find interest income more advantageous than physical gold. Gold has a risk because it can fall or rise. But there is no such risk in interest. It offers a one hundred percent guaranteed return.” Stating that the low demand has not yet had a negative reflection on the sector, Uyanık said that production continues and that the sector has entered a “wait and see” situation.
Balancing in the demand
Gold and Money Markets Expert Mehmet Ali Yıldırımtürk commented on the decline in the number of mintings of the Mint as follows: “The transaction volume on the Istanbul Gold Exchange was 155 kilos as of the previous day. One of the reasons for not going to the Mint is that gold is at a premium compared to the outside market, so they only go there when there is an excessive demand. It is currently consumed from stocks. This is one of the reasons for the low printing. When it was already at a considerable premium, gold was stockpiled and not given to the market. I am not saying that demand is too high, but there is a balancing. Another reason for this is that gold prices will rise abroad, interest rate cuts are starting. This will also have a reflection.”
Gold accounts exceeded TRY 1 trillion
While the demand for physical gold is falling, the opposite is happening in gold deposits. According to Banking Regulation and Supervision Agency (BRSA) data, the size of precious metal deposit accounts of real persons, which was TRY 845 billion in January this year, increased by TRY 162 billion in 7 months. The size of real persons’ gold deposit accounts, which increased by 19.17 percent compared to January, reached TRY 1 trillion 7 billion. In the same period, the size of TRY deposits of real persons increased by 22 percent from TRY 4.86 trillion to TRY 5.93 trillion.
Investments fleeing abroad
The gold market is on the agenda not only with low demand, but also with investments going abroad. Ercan Özboyacı, informing that both domestic and foreign investments are heading abroad, said, “After the pandemic, Middle Eastern companies moved their headquarters to Kuyumcukent, and the nuisance value of the shops skyrocketed to USD 200,000. Today, you can see that Kuyumcukent is half empty.” Özboyacı noted that local companies also started to move their headquarters out of Turkey and that migration to countries such as Egypt, Dubai and Iraq accelerated and that USD 1 billion of capital went to Egypt alone in the last 6 months. On the other hand, Özboyacı pointed out that Uzbekistan visited Turkey to create a structure similar to Kuyumcukent and said, “They say teach us, train us, but they come to take what we have.”
