The level China has reached in gold purchases indicates a remarkable change in global markets. China’s expenditure, which imported over 1000 tons of gold in the first eight months of the year, reached 158.8 billion dollars. According to experts, the fact that investors in the country, as well as the Central Bank of China, are turning to gold shows that the demand has spread to the base. The fact that China’s US Treasury bond assets decreased to 618 billion dollars in the same period, the lowest level since 2008, stands out as another indicator of the change in reserve preferences.
TWO-WAY TABLE FOR Türkiye
It is of direct importance for Türkiye that strong demand originating from China keeps global gold prices high. Türkiye is among the countries that both have strong physical gold demand and meet a significant part of its needs through imports. The rise in ounce gold, when combined with dollar/TL, is reflected more strongly in the price of gram gold. At the same time, the amount of foreign exchange paid for each kilogram of gold imported increases, and this increases the pressure on the foreign trade balance in periods when gold demand increases.
INCREASE IN VALUE OF RESERVES
However, high gold prices do not only mean costs for Türkiye. The increase in the ounce price also increases the dollar value of the gold reserves held by the CBRT.. Similarly, the TL equivalent of physical gold held by households is also growing. Thus, the rise in gold increases the cost of imports on the one hand, and increases the value of existing gold stocks on the other.
COSTS ARE INCREASING IN JEWELRY
Another effect of high prices is seen in the jewelery and jewelry industry. The increase in value of gold in dollar terms causes producers to use higher capital to finance the same amount of raw materials. While this situation is reflected in jewelery prices in the domestic market, the high price level can also limit demand. Considering Türkiye’s strong position in jewelry production and exports, the persistently high price level in gold also increases the financing need of the sector.
NEW GOLD BALANCE
Institutional Economics Expert Gülsev Duran makes the following assessment: “The emerging picture is bidirectional for Turkey. While high-volume gold purchases by China and other central banks support global prices, gram gold prices and the cost of gold imports are rising in Türkiye. While this situation puts pressure on the current balance, it also increases the value of Türkiye’s existing gold reserves. The acceleration in China’s gold purchases should therefore not be seen as just a distant market movement for Türkiye.. “Depending on the course of global gold prices, the import bill, current account deficit, value of reserves and the price of grams of gold in the hands of citizens move in the same equation,” he says.
