Collateral Metal: How Turkey's Gold Reserve Became a Wartime Source of Dollars

Introduction

On September 3, Turkey's central bank took back 16 tons of gold that it had pledged as security for a loan of roughly $1.8 billion in dollars. It was the last in a series of such deals that began with the Iran war, and the return lifted Turkey's gold reserves to 791.4 tons.

In the meantime, Brent crude crossed $100 a barrel this week as fighting between the United States and Iran escalated again. Ankara finished restoring its gold reserve days before the new energy shock that drained it returned. The episode shows what Turkey's gold is for, and what limits it will face the next time it is used.

Background: The March Drawdown and the April Rebuild

Turkey's gold holdings fell by more than 118 tons in two weeks in late March, the steepest drop since the bank began publishing the data in 2013. The war on Iran began on February 28 and pushed energy prices higher, and Turkey imports almost all of its oil and gas. Consequently, the lira fell to a series of record lows.

The central bank had already spent roughly $26 billion in reserves defending the currency before it turned to gold. Bankers estimated that around 26 tons were sold outright in the worst week, while about 42 tons went into swaps, in which the bank hands over gold, receives dollars, and agrees to buy the gold back on a set date. Central bank Governor Fatih Karahan defended the operations as a "proactive, flexible, and controlled" way to raise cash.

After the April ceasefire, market pressure eased and the bank added 36 tons in two weeks as the shortest swaps came due, lifting holdings to about 730 tons from a low near 693. The World Gold Council, an industry body, noted in June that only one-to-three-month swaps remained open. The September repayment closed the last of them.

Ordinary Turks hold gold for the same reasons as their central bank, and physical gold has served as a household savings vehicle through decades of high inflation. Households keep an estimated 3,100 tons of gold outside the banking system, and demand became heavy enough that the Treasury capped raw gold imports at 12 tons a month in 2023 to limit the trade deficit.

Analysis

Turkey's official gold functions as an emergency source of dollars. Swaps convert gold into cash within days, require no talks with the International Monetary Fund, and carry no conditions on how the government runs its economy. This calculus explains why a government that has avoided an IMF program for a decade turned to gold first.

The March operation also showed the cost of that approach for everyone else. Turkey's sales and swaps exceeded the combined selling by every gold investment fund in the world over the same two weeks, and gold prices fell as much as 16 percent during March. A single mid-sized central bank was able to move the global price of gold. Traders now watch the Central Bank of the Republic of Turkey's weekly reserves data as an indicator of stress across the region.

The political dimension is less visible. Turkey kept roughly 111 tons in London at the Bank of England at the end of 2024, after withdrawing gold from the city in 2019 during disputes with NATO allies. Borrowing dollars against gold stored in London allowed Ankara to survive a war led by the U.S. and Israel. 

Where the metal is stored indicates where Ankara expects to need liquidity. London remains the pre-eminent center for physical gold trading because it is a deep and liquid market, one that supports the active trading, lending and borrowing of bullion in a way that other centers, such as New York, do not. It was partly for this reason that some other countries have also shifted their reserves. The Dutch central bank, for instance, has recently moved 78 metric tons of gold, worth $11 billion, from New York to London, citing a desire to strengthen its crisis preparedness.

The second round of fallout from the Iran war will be harder for Turkey. The dollar reserves that absorbed the first shock have not been rebuilt as quickly as the gold, the policy rate has been held at 37 percent for four consecutive meetings, and the Iran war forced the central bank to lift its year-end inflation forecast to 26 percent from an interim target that had stood at 16 percent. Actual inflation in Turkey may be considerably higher, though. ENAG, an independent research group of economists and academics in Turkey, calculates the annual rate at 49.03 percent. With less cash on hand, the next gold swaps will come sooner and in larger amounts. 

This dynamic raises the value of disclosure. Publishing the terms of each swap and the banks on the other side, along with a stated minimum of gold that will never be pledged, would soften the price impact of future operations and give foreign investors a clearer picture of what Turkey actually holds.

Conclusion

The swap cycle that began in March closed on September 3. Turkey demonstrated that it can pledge its gold, survive a currency crisis, and recover the metal within six months.

Holdings remain within 40 tons of the pre-war level near 830, and the metal is once again available to pledge. The open question is whether the same operation works with less cash in reserve and oil back above $100. The Turkish central bank has rebuilt the collateral within six months. But the dollar reserves, the disinflation path, and above all the external confidence Ankara's swaps depend on may take much longer.