Turkey bringing home gold in U.S. reserves a political move - analysis

Following in the footsteps of Germany and Hungary, Turkey’s move to bring back its gold stored in the U.S. Federal Reserve, is not an economic move but a political message to the U.S., according to an analysis on Kitco news site.

Turkey - which has the 11th largest gold reserve in the world - repatriated 220 tons of gold from the U.S. sometime last year, Kitco said citing a report published by pro-government Yeni Şafak daily on Thursday.

The news by the daily coincides with Turkish President Recep Tayyip Erdoğan calling on the International Monetary Fund (IMF) loans to be paid in gold and not U.S. dollars last week. ‘’The world is continually putting us under currency pressure with the dollar. We need to save states and nations from this currency pressure,’’ Erdoğan had said.

The Turkish central bank said its gold reserves amounted to $25.3 billion in March 2018.

“[Turkey’s decision] has more political intonation than economic,” managing director at RBC Wealth Management George Gero said. “Turkey is trying to shore up their currency. And I think repatriation has a lot to do with currency pairs trading.”

While noting that the benefits of holding gold are unique, as the yellow metal market is becoming more international, Gero explains, “With gold, there is no political allegiance. Gold makes a lot of countries comfortable as a holding, especially if they fear inflation,” he said. “Many countries prefer to hold their own gold.”

Another factor driving Turkey’s intentions is fear that all gold ETFs are “oversubscribed,” according Todd 'Bubba' Horwitz, chief market strategist at BubbaTrading.com.

“There is fear that you won’t have enough gold to cover the amount of all traded ETFs. Governments want to hold physical gold in their own vaults. A lot of these countries don’t really trust the entire system either,” said the strategist, adding, “But, funnily the price of gold is not reacting to it.”

The gold repatriation trend was set into motion by  Germany last summer when the central bank completed the move of 674 metric tons from the vaults of the Federal Reserve Bank of New York and the Banque de France three years prior to schedule. Before that Germany had repatriated 940 tons of gold from the Bank of England.

Hungary joined the club in March when the country’s central bank announced that it is planning to bring back 100,000 ounces of gold back from London. Hungary cited the reason behind the decision as strengthening market confidence.