It has been an miserable five years for Turkish citizens who have seen their purchasing power slashed by more than half, and it’s only getting worse.
The Turkish lira has cratered against the dollar and most developed currencies, plunging from 3 TRY per dollar, to a record low 7.37 last week after a brief and valiant attempt at imposing shadow capital control by Erdogan (who is now de facto head of the Turkish central bank) failed miserably at the end of July, and not even a draconian hike in overnight funding rates above 1000% last week (to crush the shorts) was able to prevent a plunge in the Lira to new all time lows.
As their currency implodes (in a nation that is becoming increasingly more “banana” with each passing day as Erdogan solidifies his takeover of every government institution, in the process turning off any potential foreign investors) Turks are discouraged from material purchases of dollars to hedge the collapse in their native currency due to some of the strictest capital controls on the planet, which has left them with just one option.
As Reuters reports, Hasan Ayhan followed his wife’s instructions last week and took their savings to buy gold at Istanbul’s Grand Bazaar as Turks scooped up bullion worth $7 billion in a just a fortnight while their currency went up in flames.
The retired police officer, hit by vivid memories of the 2018 currency crisis which saw the Lira lose 30% of its value virtually overnight, was among those playing it safe as he queued in the city’s sprawling covered market, where a screen showed the gold price rise by one Turkish lira ($0.1366) in just 10 minutes.
What’s more, it now appears that locals are choosing gold over the dollar, perhaps because the dollar has also been tumbling against gold in recent weeks due to the Fed’s overt attempts to debase the greenback.
“I think it is the best investment right now so I converted my dollars to buy gold,” the 57-year-old said, adding: “I might withdraw my lira and buy gold with it too, but I am scared to go to the bank right now because of coronavirus.”
Well, Hasan, for people in Turkey it is the best investment, but there is a rather high chance that Erdo pulls an FDR and makes it illegal for anyone in Turkey to own gold so you and your fellow countrymen may want to have a series of unfortunate boating accidents in the coming weeks.
In any case, the day after Ayhan bought his gold on Aug 6, the lira hit a historic low and has continued to slide, laying bare concerns that Turkey’s reserves have been depleted by market interventions, which are showing signs of fizzling out, even as the central bank and president flood the local airwaves with fake news about monetary stability and urge locals to keep their money in lira.
Only this time it’s not working: turks have traditionally used gold as savings and there may be as much as 5,000 tonnes of it “under mattresses”, with more added after the recent buying spree, Mehmet Ali Yildirimturk, deputy head of an Istanbul gold shops association, said.
And although gold has never been more expensive – in either lira or dollar terms – vendors at Istanbul’s Grand Bazaar said almost no one is coming to sell their gold jewellery. There are only buyers.
“I’ve been chatting with hundreds of people who are thinking about selling their cars or houses to invest in gold,” said Gunay Gunes, whose busy booth is near the market’s entrance.
Putting the recent gold-buying frenzy in context, in just the last three weeks, as selling gripped the lira local holdings of hard assets such as dollars and gold jumped $15 billion to a record of nearly $220 billion, making a mockery of the central bank’s attempts to halt the currency slide.
The good news is that, according to Reuters, so far there is no evidence suggesting people are about to pull savings from banks, and this week the lira has hovered around 7.3 versus the dollar, although it remains among the worst emerging-market performers this year. Demand has eased since Turks withdrew some $2 billion in hard foreign cash from their banks during a March-May period in which a lockdown was imposed and the lira hit its last low, according to central bank banknote data.