Turkish appetite for gold unfazed by record prices

LONDON (Reuters) – Turkish consumers are expected to remain keen on gold, despite record high world bullion prices, thanks to a rise in the value of the lira against the dollar. Traditionally the dollar has been used by Turks as a safe haven in times of inflation, but the strength of lira has prompted people to switch to alternative instruments. Gold imports into Turkey, the world’s third-biggest gold consumer, rose by 20 percent to 231 tons in 2007, shrugging off a huge rally in bullion prices. Turmoil on financial markets, the dollar’s weakness and firm oil prices have boosted gold’s appeal and sent it to an all-time high above $914 an ounce yesterday. That’s up almost 44 percent from around $636 at the start of 2007. But in lira terms, gold’s rise has been much more modest. The Turkish lira rose more than 20 percent against the dollar last year and has firmed to its highest level in more than six years as some of the highest interest rates in emerging markets have lured investors. On the Istanbul Gold Exchange, bullion stood at 30.5 lira per kg at the end of last year, against 28.8 lira at end 2006. Turkish jewelers say demand is still strong. «The price did not have a negative impact on demand,» said Cetin Binatli, a board member of Turkey’s leading jewelry-maker Goldas. «The lira is strong against the dollar, which offsets the price rise. That is why the demand is still strong on the domestic market.» Last week, a top executive at the Istanbul Gold Exchange predicted the country’s gold imports could rise around 20 percent in 2008, and even set a new record high, exceeding the 270 tons in 2005. Guarantee for savings The dollar has always served as the traditional savings instrument for Turks, who have suffered from high inflation and depreciating purchasing power in the past. However, the US currency’s poor performance, coupled with the gloomy outlook in the world economy triggered a shift in this traditional investment and savings behavior. «Consumers started to think of gold as the best instrument to save money,» Istanbul-based dealer Serafettin Ince at Aycan FX said. «People want a guarantee for their savings because of the problems in the world economy and they have found this guarantee in gold now.» In addition, the lira’s strength, now at around 1.1500 to the dollar, has offered attractive gold arbitrage opportunities for investors. «The spread between the domestic and international price has widened, especially in the past 10 days, since the new year. And that encourages buyers,» an Istanbul-based gold trader said. Dealers in the Grand Bazaar, Istanbul’s historical forex and gold trading hub, said domestic prices were $4-5 below the international spot price.