Author: Le Ming

Recently, a shocking number has surfaced in the global financial market: the Central Bank of Turkey sold approximately 58.4 tons of gold within just two weeks, worth over $8 billion. During the week of March 13, it reduced 6 tons, and in the week of March 20, it plummeted by 52.4 tons.

The weekly data from the Turkish central bank clearly outlines 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) actually increased by $5.8 billion during the same period.

In the midst of a drop and a rise, the traces of the operation "exchanging gold for foreign currency" couldn't be more obvious.

For the past decade, Turkey has been one of the most aggressive buyers of gold in the world, accumulating gold reserves from 116 tons in 2011 to over 820 tons.

After all the effort to build a fortune, why was there suddenly a massive sell-off within two weeks?

The answer is just three words: survive.

Trigger: A war that has pushed Turkey into a "perfect storm"

On February 28, the United States and Israel jointly launched a military operation codenamed "Epic Fury," conducting airstrikes on Iranian nuclear facilities, military bases, and government buildings.

Iran retaliated immediately, effectively blocking the Strait of Hormuz—through which 20% of the world's maritime oil and 20% of LNG trade passes.

Brent crude oil soared from $73 per barrel before the war to over $106, an increase of over 40%, which the International Energy Agency defined as "the most severe global energy security challenge in history."

For most countries, this is just a shock; but for Turkey, this is a survival crisis.

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

An even more fatal blow came on March 24—when Israel bombed Iran's South Pars gas field, Iran immediately stopped exporting natural gas to Turkey. Iran is Turkey's second-largest supplier of pipeline natural gas, accounting for about 13% to 14% of its gas imports. This 25-year contract is set to expire in July 2026, and the war has directly turned any prospect of renewal into a mirage.

Simply put, Turkey's situation is: the energy bill suddenly doubles, key gas supply is cut off, and there is no equivalent alternative in the short term.

Transmission chain: Foreign exchange reserves couldn't hold out first

Energy imports must be settled in US dollars, causing importers to scramble for dollars, which led to a sharp drop in the lira.

In the 16 trading days since the conflict broke out, the lira against the dollar set historical lows 11 times in a row, reaching about 44.35 lira to 1 dollar on March 25.

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

Thus, the Turkish central bank was forced to start a "lira defense war." In just the first week of March, it sold over $8 billion in foreign currency. In the three weeks leading up to March 19, the central bank consumed about $25 to $30 billion of its foreign exchange reserves. After deducting swaps, net reserves plummeted from $54.3 billion before the war to $43 billion.

Turkey's weekly data fully documented this process: foreign exchange reserves (excluding gold) dropped from $55 billion on March 6 to $47.8 billion on March 13—first using foreign exchange ammunition. By March 19, foreign exchange reserves recovered to $53.6 billion, but gold reserves simultaneously collapsed from $134.1 billion to $116.2 billion—foreign exchange ammunition quickly ran out, and gold began to be used.

This is a textbook-style emergency defense sequence of "first use foreign exchange, then use gold."

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

Gold swap: Why "pledge" rather than "sell"?

The key to understanding this operation is: over half of Turkey's gold reduction was completed through swaps rather than direct sales.

The essence of a gold swap is "exchange gold for currency, repay at maturity." The central bank hands over gold to the counterparty (usually a top investment bank) in exchange for an equivalent amount in dollars, while signing a forward contract to buy back the gold at a slightly higher price in the future. It is a short-term financing behavior, not a permanent liquidation.

The central bank's choice of swaps over outright sales has at least three considerations.

First, preserving long-term positions. If it is judged that the oil price surge is only a temporary shock, swaps can alleviate the urgent situation, and gold can be repurchased later, avoiding the destruction of a decade of accumulation in one fell swoop.

Second, reducing the impact on gold prices. Dumping 60 tons of gold directly on the market could trigger a cliff-like collapse, which in turn would substantially diminish the remaining gold reserves worth over $100 billion. Swaps occur quietly in the over-the-counter market, causing much less impact.

Third, a buffer on the domestic political level. Gold is seen as an "anti-inflation totem" in the minds of the Turkish people; announcing a large-scale gold sale could easily trigger panic, while swaps can technically maintain a certain level of ambiguity.

This operation was completed quickly within two weeks thanks to a key prior arrangement: Turkey stored about 111 tons of gold worth approximately $30 billion in the Bank of England. This gold can be used for foreign exchange intervention without logistical restrictions—there’s no need to transport physical gold across borders, it can be pledged and monetized directly in the City of London.

Pressure on gold prices

Turkey has a historical pattern: selling gold during crises and buying back afterward.

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

However, this judgment has one core premise: the war cannot become protracted.

Swap agreements carry holding costs and interest. If the war persists, and energy prices remain anchored above $100, with Turkey's foreign exchange earning capacity failing to cover skyrocketing energy bills, then these "temporary swaps" will never be redeemable and effectively turn into "permanent distress sales."

Therefore, in the coming weeks, if the conflict continues, Turkey will need to continue converting its $135 billion gold reserves into a lifeline.

Although Turkey prefers to obtain foreign exchange liquidity through "pledging" gold, these transactions still substantially increase the downward pressure on the gold market. In the London over-the-counter market, when the Turkish central bank transfers dozens of tons of gold as collateral to international trading counterparts (such as investment banks) in exchange for dollars, these financial institutions receiving the gold usually engage in corresponding short-selling or selling operations in the spot or futures derivatives market to hedge their own position risks.

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

Conclusion

Turkey's central bank selling off 60 tons of gold in two weeks is not about panic or speculation, but a rational self-rescue by a country highly reliant on energy imports facing exhaustion of foreign exchange, a plummeting lira, and a halted natural gas supply after its allies bombed its largest energy supplier.

Image: The market is crazily shorting the lira, partly betting that the conflict will not end soon, and partly betting that Turkey will finally not be able to hold out

As the outlook for the conflict worsens, Turkey still needs to continue to withstand the pressure.

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