The US and Iran are at war: Why is Turkey flooding the market with gold?

Recently, a shocking figure has emerged in the global financial markets: the Central Bank of Turkey has reduced its gold holdings by approximately 58.4 tons in just two weeks, worth over $8 billion. During the week of March 13, it decreased by 6 tons, and in the week of March 20, it plummeted by 52.4 tons.

The weekly data from the Central Bank of Turkey clearly depicts this picture: from March 13 to 19, the market value of gold reserves collapsed from $134.1 billion to $116.2 billion, evaporating nearly $18 billion in a single week; meanwhile, foreign exchange reserves (excluding gold) rebounded by $5.8 billion during the same period.

Between the decline and the rebound, the traces of “exchanging gold for foreign exchange” are unmistakable.

Over the past decade, Turkey has been one of the world’s most aggressive gold buyers, increasing its gold reserves from 116 tons in 2011 to over 820 tons.

Why has this hard-earned wealth suddenly been sold off on such a large scale within two weeks?

The answer can be summarized in three words: survive.

The Trigger: A War That Pushes Turkey into a “Perfect Storm”

On February 28, the United States and Israel launched a joint military operation codenamed “Epic Fury,” airstriking Iran’s nuclear facilities, military bases, and government buildings.

Iran immediately retaliated and effectively blocked the Strait of Hormuz—through which 20% of the world’s maritime oil and 20% of LNG trade pass.

Brent crude oil surged from $73 per barrel before the conflict to over $106, an increase of more than 40%, which the International Energy Agency described as “the most severe global energy security challenge in history.”

For most countries, this was merely a shock; but for Turkey, it was a survival crisis.

Turkey relies on imports for 90% of its oil and 98% of its natural gas. Every $10 increase in oil prices results in a $4.5 to $7 billion increase in the current account deficit. Based on post-war oil prices, the annual energy import bill could soar by about $15 billion.

An even more lethal blow came on March 24—Israel airstruck Iran’s South Pars gas field, and Iran immediately halted natural gas exports to Turkey. Iran is Turkey’s second-largest pipeline gas supplier, accounting for about 13% to 14% of its natural gas imports. The 25-year contract for this pipeline is set to expire in July 2026, and the war has directly turned the renewal prospects into a mirage.

In simple terms, Turkey’s situation is: energy bills suddenly double, critical gas supplies are cut off, and no suitable alternative can be found in the short term.

The Transmission Chain: Foreign Exchange Reserves Cannot Hold Out

Energy imports must be settled in U.S. dollars, prompting importers to scramble for dollars, causing the lira to plummet.

In the 16 trading days since the conflict erupted, the lira’s exchange rate against the dollar hit a new low 11 times, reaching approximately 44.35 lira per dollar on March 25.

Behind this is the accelerated withdrawal of foreign investors: $4.7 billion flowed out of Turkish bonds in three weeks, $1.2 billion exited the stock market, and speculative positions shrank from a record $61.2 billion in January to below $45 billion.

Thus, the Central Bank of Turkey was forced to launch a “lira defense campaign.” In just the first week of March, it sold over $8 billion in foreign exchange. Over the three weeks ending March 19, the central bank consumed approximately $25 to $30 billion in foreign exchange reserves. After accounting for swaps, net reserves plummeted from $54.3 billion before the war to $43 billion.

Turkey’s weekly data fully records this process: foreign exchange reserves (excluding gold) fell from $55 billion on March 6 to $47.8 billion on March 13—first using foreign exchange ammunition. By March 19, foreign exchange reserves rebounded to $53.6 billion, but gold reserves simultaneously plummeted from $134.1 billion to $116.2 billion—foreign exchange ammunition was nearly exhausted, and gold began to be used.

This is a textbook example of an “emergency defense sequence: using foreign exchange first, then gold.”

Image: Foreign exchange data released by the Central Bank of Turkey

Gold Swaps: Why Not “Sell,” but “Use”?

Understanding this operation hinges on the fact that over half of Turkey’s gold reduction was achieved through swaps rather than outright sales.

A gold swap essentially involves “exchanging gold for foreign exchange, with redemption at maturity.” The central bank hands over gold to a counterparty (usually a primary investment bank), receiving an equivalent amount of U.S. dollars, while signing a forward contract to buy back the gold at a slightly higher price later. It is a form of short-term financing, not a permanent liquidation.

The central bank’s choice of swaps over outright sales is based on at least three considerations.

First, preserving long-term positions. If the surge in oil prices is judged to be temporary, swaps can address immediate needs, allowing future redemption of gold and avoiding the destruction of a decade’s accumulation.

Second, minimizing impact on gold prices. Directly dumping 60 tons of gold could trigger a market crash, drastically depleting the remaining over $100 billion in gold reserves. Swaps are conducted quietly in the over-the-counter market, causing much less market disturbance.

Third, providing a political buffer domestically. Gold is regarded as an “anti-inflation totem” among Turkish citizens, and announcing large-scale gold sales could trigger panic. Swaps, on the other hand, can technically maintain a certain level of ambiguity.

The ability to quickly complete this operation within two weeks was enabled by a key pre-positioning: Turkey has stored about 111 tons of gold, valued at roughly $30 billion, in the Bank of England. These gold reserves can be used for foreign exchange interventions without logistical constraints—no physical cross-border transportation is needed, as the gold can be pledged directly in the City of London.

Pressure on Gold Prices

Turkey has a historical pattern: during crises, sell gold; after the crisis, buy back.

During the 2018 lira crisis, the 2020 pandemic shock, and the 2023 earthquake—each time the central bank reduced gold holdings to provide liquidity, then resumed accumulation. Analysts generally believe that the March 2026 operation continues this pattern.

However, this judgment relies on a key premise: the war must not become prolonged.

Swap agreements come with holding costs and interest. If the war persists, energy prices remain above $100 for a long time, and Turkey’s foreign exchange earnings cannot cover soaring energy bills, these “temporary swaps” will never be redeemed, effectively turning into “permanent cheap sales.”

Therefore, in the coming weeks, if the conflict continues, Turkey will have to keep turning its $135 billion in gold reserves into a lifeline.

Although Turkey prefers to “pawn” gold to obtain foreign exchange liquidity, these transactions substantially increase downward pressure on the gold market. In the London OTC market, when the Central Bank of Turkey transfers dozens of tons of gold as collateral to international trading counterparts (such as investment banks) in exchange for dollars, these institutions hedge their positions by engaging in short sales or derivatives in the spot or futures markets.

As a result, the liquidity of this gold batch will ultimately transmit to the market, indirectly increasing supply and lowering prices.

Conclusion

The Central Bank of Turkey’s sale of 60 tons of gold in two weeks is neither panic nor speculation, but a rational self-rescue by a country heavily dependent on energy imports after its allies bombed its largest energy supplier. Faced with foreign exchange depletion, lira depreciation, and natural gas supply cuts, this is a strategic move.

Image: The market is frantically shorting the lira, betting both that the conflict will not end soon and that Turkey will ultimately not withstand.

As the conflict outlook worsens, Turkey still needs to endure the pressure.