Turkish Gold Exports (And Imports)

Back at the end of June, I was one of the first who brought up the huge rise in Turkey’s gold exports to Iran. Many journalists and columnists picked up on the story, and I did a post a couple of weeks after the original one, summarizing the different views.

All the buzz led the Turkish Statistical Institute (TurkStat) to issue a press release (in Turkish) at the end of July. They were basically saying that Iran is not bypassing the oil sanctions by getting oil payments in gold. But that’s not what Radikal columnist Ugur Gurses and others were claiming in the first place. Their story is that Turkey pays in imported oil with foreign currency in Iran’s account in state bank, Halkbank. Iran converts the foreign currency into gold and then physically sends the gold.

Turkish daily Milliyet argues there is another channel as well (in Turkish): They claim there is a simple arbitrage play here: “Connected” Iranian businessmen are buying euros from the government at cheap rates. They then buy gold in Turkey, export the gold to Iran, sell it and pocket the profits. I would call this pure speculation, but Milliyet has done some investigative journalism as well: They note that an Azeri-Iranian businessman changed his company’s title at the end of October to include activities in gold. Interesting, to say the least. Hurriyet Daily News summarizes all the different theories floating out there.

Anyway, July trade statistics were released on Friday. You can read the details in Citi’s note, but exports of gold to Iran are going strong, in fact to such a point that Iran is now Turkey’s biggest export market, both on a monthly and year-to-date data basis, as Ugur Gurses notes in Radikal (in Turkish). But as Roubini Global Economics’ own Rachel Ziemba noted in an email to me on Friday, many people are ignoring the other part of the coin. Here’s the picture she sent me:

Since gold is not growing on trees, Turkey needs to be importing a lot of gold to be able export it to Iran. Therefore, it is no surprise that imports of gold have soared, as well.

Anyway, TurkStat releases imports by goods and country, so you can find the biggest importers to Iran, but it is very difficult to organize the data. Alternatively, you can get the data, with a small lag, from U.N. Comtrade. In any case, the TurkStat note I mentioned above listed the top 10 export and import destinations for gold. The names are in Turkish, but many are universal (Ingiltere is England and Isvicre Switzerland, for example), and there is seslisozluk for those that aren’t. Other than those in the list, I was told the following by a friend:

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It’s common practice to import physical gold from London. Several global banks such as JP Morgan, CSFB, Scotia quote gold and deliver it to customer or Istanbul Gold Exchange. Usually they do not bother below 100 kg and include insurance and delivery cost in ounce price of gold. It’s competitive pricing as I negotiated with them for XXXX.

XXXX is a company I've decided not to name to make sure I don’t reveal the identity of the person. BTW, I have also been told that domestic gold production has increased as well; you can see this in Turkish gold company (e.g. Koza) results, but someone also told me that not all the production is in their books- I am not sure why. Anyway, among other things, this is because the rise in gold prices have made placer mining (the traditional style as in Western movies, i.e. without cyanide), which is usually too expensive to be viable, possible again…

Written By: Emre Deliveli