Turkey swaps gold for foreign reserves as war raises inflationary pressures on emerging markets

Turkey turns to the gold in its basement: Turkey’s central bank has already sold some USD 8bn worth of gold as part of a bullion-for-cash sale program that could be worth as much as USD 30 bn. Turkey could liquidate as much as USD 30 bn in gold it has parked at the Bank of England, liquidating a sizable chunk of its USD 135 bn gold stockpile as it looks to protect the TRY.

What’s happening? Turkey is facing down a skyrocketing energy bill as crude prices spiral and significant outflows of foreign capital amid the risk-off that has accompanied the war against Iran. Policymakers want to pull off the defense without having to resort to further interest rate hikes.

SOUND SMART- Turkey’s economy was just turning the corner when the war with Iran broke out. Tight monetary policy had brought inflation down to 31.5% — still one of the highest figures globally — from north of 85% in 2022.

Turkey’s woes in numbers: Turkey burned through some USD 28 bn in foreign reserves in the first few weeks of March, ING Group’s Chief Economist for Turkey, Muhammet Mercan, estimates. This was largely driven by a spate of exits that saw foreign debt holders sell some USD 6 bn in bonds and carry-trade investors dump USD 12 bn worth of long TRY positions in the first weeks of the Iran war.

And Ankara isn’t alone: Other emerging-market gold bugs could follow suit, pundits suggest.

Gold bugs, unite

Turkey isn’t the only country to have joined Naguib Sawiris in his love of gold: Both emerging and developed economies have recently been increasing their reserve of the metal — a trend that has been on the rise since Russia’s invasion of Ukraine in 2022, but recently accelerated in the wake of Israel’s destabilizing wars in our region.

WHO ELSE could sell? Any net-energy importer with reasonable gold stocks, pundits suggest. Selling gold for cash reserves could allow central banks in Egypt and Jordan avoid a massive swing in the balance of payments without higher interest rates that could trigger stagflation, given the growing signs of a global slowdown. The value of Egypt’s gold reserves almost doubled y-o-y to USD 21.5 bn as of February of this year, and Jordan’s reserves stand now at about USD 9.6 bn — almost tripling in value between 2022 and 2026, according to data from CEIC.

Developed markets have traditionally held the larger share of the world’s gold stockpile, but emerging economies are catching up as part of a push to diversify currency hedging strategies amid rising economic and geopolitical uncertainty. In 2022, gold holdings stood at 1.8% of the world’s GDP. In 2024, this rose to 2.5%, with the emerging markets' gold-to-GDP ratio growing at a slightly faster pace in our calculation.

This trend is one of the main drivers that contributed to the unconventional price volatility of what is otherwise a reliable asset. As of February 2025, central banks and the IMF held about 20% of the global stock of gold.