Economic & political worries
means Turkey is selling, not buying gold, before this weekend's election...
IMAGINE that your country goes to the
polls this Sunday..
Like you, everyone would be buying gold,
right? But not in Turkey.
The world's fourth largest gold-buying
nation, Turkey already slipped during the first quarter of 2015 to 9th place
for jewellery and 11th for small bars and coin according to the World Gold
Council's Q1 demand trends report. This week's new import and export data now show Turkey
"comfortably" becoming a net supplier to the international market,
as consultancy Metals Focus note in their weekly
update.
Indeed, gold coin production...formerly
the world's No.1 ahead of even China...has slumped 60% so far in 2015
compared with the same period last year on the giant Darphane mint's
data.
Besides some structural changes to the
local gold market (notably last year's near-ban on buying with credit
cards...since eased only a little), "The Turkish market [remains] highly
price sensitive," explain analysts at Thomson Reuters GFMS. And right
now, "the majority of people are not very hopeful of the future," explains Metals Focus.
So unlike Western investors chasing assets
higher, Turkish consumers buy dips in gold, and sell spikes. They also stop
buying...and start selling...when things get tough.
This smart trading behaviour marks what
Frank Holmes at US Global Investors has called the 'love trade' amongst Middle Eastern and Asian households. It makes a handy
counterbalance to the 'fear trade' which tends to drive Western households'
investment demand.
That perhaps over-simplifies the blur
between jewellery and investment demand worldwide. But bottom line, and with
global gold demand now softening into the usual summer lull across Asia –
especially in world No.1 consumer India, where this year's Hindu calendar may see fewer weddings overall – the fact is that gold prices are in truth holding up
pretty well right now.
BullionVault users is the answer, both
larger and smaller. As a group, client holdings at the internet's No.1
precious metals exchange have now swollen at the fastest pace since the turn
of 2012-13. With fresh deliveries coming Friday
to re-stock our trading float, the Daily Audit on Monday will show a new
record total above 34 tonnes.
Fear, love or bargain-hunting? All three
from talking to clients this week. Prices are low. Other asset classes have
been delivering strong gains. The fear is those two facts might not stay true
for much longer.
"Given all the uncertainties,"
writes a bullion trading desk in London, pointing to the "bond sell off,
USD and equity oscillations, Draghi telling markets to get used to volatility
while IMF warning US not to raise rates...one would think the VIX Index [of
volatility in US equity option contracts] would be sharply higher.
"Yet it remains largely
unchanged." Because money managers and bank traders remain, bizarrely,
unconcerned. Not even the revived Greek debt crisis...surely now coming to a
head at last after 5 long years...has spooked the relative calm. Not yet.
Back across the border in Turkey
meantime, households owning gold "have simply taken advantage of the
situation to realise a monetary gain," says Metals Focus. Meaning that
"in a traditionally price sensitive market, gold is behaving as one
would expect."
The flip-side of this, they reckon, is
that an easing of Turkey's political and economic worries will likely see
private gold demand return as the Lira recovers on the FX market. Maybe a
bigger vote for the AKP would deliver it, as one precious metals professional tells TheBullionDesk. Or perhaps a coalition government, adding
secular moderates to the mix would be better, according to Metals Focus's
Turkey analyst in Istanbul.
All eyes on Sunday's result then.
Squaring how Western analysts and investors see gold with how the world's 4th
heaviest buyers view it, however, may take longer.
