Gold, which rose above 5,000 dollars with the influence of geopolitical concerns, brought the total gold assets in Türkiye, mostly under pillows, to half of the total GDP of 1.5 trillion dollars. The wealth increase and spending effect created by this process was a factor that slowed down disinflation.
In the last year, when gold prices increased by a record rate of nearly 80 percent, which is rarely seen, the gold-related wealth impact has exceeded 300 billion dollars.
The wealth effect caused domestic demand not to slow down to the desired extent through the spending channel, especially in automotive and housing. This effect, which was outside the control area of monetary policy, was an important factor that slowed down the already fragile disinflation.
The Central Bank calculates that most of the gold in Türkiye, at $600 billion, consists of gold under the mattress – that is, held outside the banking system by households and companies. Economists’ calculations are in a similar direction.
This situation is also a reflection of the Turks’ tradition of seeing gold as a safe, portable and tangible means of preserving wealth. Gold, worn at weddings and passed down from generation to generation, has been the number one investment choice in the country for years, both for religious reasons and to protect against inflation.
This sharp rise in gold, which has not been seen for years, was a factor that increased spending due to the wealth effect. Economists and the Federal Reserve say this complicates the disinflation process.
In January alone, gold prices rose nearly 25 percent in dollar terms, and the gold-related wealth impact in Türkiye was $80 billion in just one month.
In the daily note published by QNB economic research, it was stated that “As of January, the total profit from the gold stock in the last 1-year period reached 311 billion dollars. This amount indicates a historically record high level of 19.3 percent compared to GDP… The findings show that the income effect originating from gold prices plays a significantly increasing role on domestic demand.”
INCREASE IN SPENDING
While Türkiye is among the countries with the highest household gold ownership, along with India, Germany and Vietnam, gold reached $5,000 per ounce last month due to geopolitical concerns.
Furkan, a 21-year-old air conditioning technician who bought grams of gold from a jeweler in Istanbul, stated that he was saving gold to buy a car and said, “I have been investing in physical gold for a year, every time I save money, I buy it piece by piece.”
Apart from those kept under lock and key, there are over 80 billion dollars of gold deposits and funds in the banking system. In addition, the value of the Central Bank’s own gold reserves is over 80 billion dollars. According to this calculation, Türkiye’s total gold stock is around 760 billion dollars. This means 49 percent of the country’s GDP. Türkiye is in a very different position from other countries, both in terms of the under-the-cushion share of gold assets and its ratio to the economy.
CBRT’S INTEREST REDUCTION RATE HAS DECREASED SIGNIFICANTLY
In a blog post published last year, the Central Bank found that housing prices in provinces with a high share of gold deposits increased much faster than other regions, starting from the last quarter of 2023, when the global gold rally began.
In the analysis published on the blog called The Center’s Diary, where CBRT employees share their opinions, the process was described as “an indicator of a significant wealth effect” originating from gold.
At a time when the consumption trend weakened due to expensive loans, under-pillow gold accumulation opened a new area for local consumption. According to the CBRT analysis, this area: “The sharp increase in gold prices in the period after September 2023 caused an increase in demand in the housing and automobile markets.”
Asım Gürsel, a jeweler in Istanbul, said that in the last year, customers are increasingly selling gold to buy a car or a first home, and the past trend of “selling a house and buying gold” has reversed. Gürsel also said that sales increased further after the sharp increase in prices.
The gold-induced wealth effect and the increase in consumption tendency caused by this effect is an area where the effect of monetary policy is quite limited.
Looking at January alone, the increase in global gold prices broke a historical record with 25 percent. This means a wealth impact of $80 billion in January alone. The increase in dollar gold prices in the last year is nearly 80 percent. When we look at the last 2 years, the increase is at the level of 150 percent.
