Turkey’s hidden treasure

by Daniel Dombey

In Turkey, gold is a way of life. For example, a Turkish bride often brings an outsize purse to her wedding, all the better for guests to drop gold coins into. (If she’s unlucky, they will pin bank notes on her gown instead.)

But now, it looks like the national interest in the shiny metal could have an impact on the national accounts as well – and just at the right time.

Turkey has hefty financing needs. It has a current account deficit of about $75bn, which is increasingly bankrolled by volatile financial flows rather than long term foreign direct investment. And figures out this week showed that foreign debt due in the next 12 months adds up to another $132bn, which means the country needs more than $200bn in external financing.

Enter Ozgur Altug at BGC Partners in Istanbul.

In a research note, he says the Turks have around $300bn of gold under their pillows – or, alternatively, 4,670 tons of the stuff or 649m standardised gold coins (of wedding fame), which averages out at about 32 coins a household.

Of course, during the past few years, when the gold price has gone up, this has (inadvertently?) proved a good investment.

“The historic high gold price, global worries and efforts to bring gold holdings into the financial system could trigger further gold sales,” Altug writes. “Even 5 per cent liquidation of the under-pillow gold could contribute to the GDP growth by two percentage points, which could limit the possible negative impact of another global recession.”

Not only that, but the metal could also work its magic with Turkey’s financing needs, he says.

During tough economic times in 2009, Turkey became a net gold exporter for the first time – because people were selling their hoards, or at least part of them. As Altug points out, similar sales today would help bring down the current account deficit.

So much is possible when you’ve got $300bn hidden away – if that is indeed the case. The central bank, which has a mere $90bn or so in reserves, must be enviously eyeing the pillows of the nation.

via Turkey’s hidden treasure | beyondbrics | News and views on emerging markets from the Financial Times – FT.com.