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Turkey on a Gold Buying Spree

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Turkey is buying gold.

The question is: why?

According to a Bloomberg report, the Turkish central bank added 3.8 million ounces of gold worth almost $5 billion to its reserves this year.

Officials say the number may be skewed higher due to commercial bank deposits. But even if the central bank only purchased a third of that 3.8 million ounces, it would still rank Turkey among the top two or three gold buyers in 2017.

Turkey ranks 11th in the world in gold holdings, according to the International Monetary Fund.

So, what is driving Turkey’s appetite for gold?

The central bank says its merely diversifying. But some analysts speculate Turkey could be shoring up its reserves due to rising tensions with its traditional Western allies. Societe Generale SA analyst Robin Bhar told Bloomberg this theory is gaining ground in financial circles.

There could be any number of reasons why they’re doing this, we just don’t know. One of the popular views is that they are fearful that their neighbors will antagonize them further, and that this will help them weather that storm.”

Relations between Turkey and nations such as the US and Germany have deteriorated in recent months.

The Turkish central bank kicked off its latest buying spree around the same time President Recep Tayyip Erdogan called for Turks to use gold instead of dollars to help stem a drop in the lira. London-based Metals Focus Ltd. consultant Cagdas Kucukemiroglu said the president is likely pushing the central bank to buy gold.

The president has always been pro-gold and is against the dollar, and that’s informing the central bank’s decision as well.”

Russia and China are taking a similar approach. Gold plays a key role in those countries’ plans for economic independence. Russian President Vladimir Putin has taken a number of aggressive steps to break away from the hegemony of the US dollar and the dollar payment system that currently dominates global trade.

As part of its quest for economic independence, Russia has also been buying gold – and lots of it. At 1,700 tons, Russia’s has the sixth largest gold reserves in the world. In 2016 alone, the Russian central bank purchased 201 tons of gold, far more than any other central bank in the world.

China has also significantly boosted its gold reserves over the last two years. Buying gold makes these countries less dependent on dollars. In fact, as Russia has boosted gold purchases, it’s stopped buying foreign currency – including US dollars.

Simply put, buying gold decreases Russia’s dependence on the dollar. That, in turn, loosens foreign (American) strings binding Putin, as London-based metals analyst Matthew Turner told the Irish Times.

Gold is an asset that is independent of any government and, in effect, given what is usually held in reserves, any Western government. This might appeal given Russia has faced financial sanctions.”

It makes sense given current international dynamics that Turkey would also want to loosen the strings of US and Western European influence by unshackling itself from the dollar system.

Gold is a key to economic independence for countries looking to minimize the risk posed by the US fiat currency and to shake off the influence of foreign governments. The Turks seem to recognize this.

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