Turkey Considers Using Gold Reserves to Support the Lira Amid Pressures from the War in Iran

The Central Bank of Turkey is considering using part of its massive gold reserves to stabilize the lira amid renewed pressure on the currency due to the war in Iran, according to Bloomberg.

The lira is experiencing increasing volatility as energy prices rise and geopolitical instability persists, exacerbating the country’s already fragile economic situation.

Bloomberg reported that officials have discussed the possibility of conducting gold-for-foreign-currency swaps in the London market.

Turkey has accumulated substantial official gold reserves over the past decade, valued at around $135 billion in early March.

About $30 billion of these reserves are held at the Bank of England and can be used “for foreign exchange market intervention purposes without logistical constraints,” according to Fatih Akçelik, an economist at J.P. Morgan, in a note cited by Bloomberg.

Turkey is affected by the Iranian conflict as it imports most of its oil and gas needs.

With inflation reaching 31.5% in February, officials have relied on maintaining a high real value of the lira to stabilize prices—a strategy that Bloomberg says has become much more costly as reserves shrink and import costs rise.

Policymakers have already tightened liquidity measures, raised funding costs, and relied on state banks to support the currency.

Bloomberg also reported that the central bank recently sold nearly $16 billion in foreign-currency bonds, including U.S. Treasury securities.

The report notes signs of tension on the ground as well, with traders in Istanbul’s Grand Bazaar beginning to sell dollars at rates higher than the interbank rate, indicating rising domestic demand for foreign currency.

Despite gold being considered a safe haven, the yellow metal’s price has dropped significantly since the outbreak of the Middle East conflict. It is currently trading at around $4,372 per ounce, down from about $5,419 on March 2.