Informant: Turkey Mulls Deploying $135 Billion Gold Reserve to Defend Lira

Turkey’s central bank is considering using its $135 billion gold reserves to stabilize the lira against rising volatility linked to the war in Iran. Discussions are ongoing about using gold-for-foreign currency swap transactions in the London market, according to multiple sources. The move highlights growing economic pressures as inflation and global geopolitical tensions weigh on the currency.

The central bank has built up gold reserves over the past decade as a hedge against dollar volatility. With a portion of these reserves held at the Bank of England, the central bank may be able to act quickly if needed. This would provide immediate liquidity without logistical constraints.

Turkey’s economy faces unique challenges, including high dependence on imported energy. With inflation at 31.5% as of February, the central bank is under pressure to find alternative tools to support the lira. Rising oil prices and global instability are compounding the problem.

Why Is the Central Bank Exploring This Option?

The central bank has long maintained a strategy of real lira appreciation to curb inflation. However, recent developments—including heavy reserve drawdowns and rising import costs—have made this approach more expensive to maintain. Gold-for-foreign currency swaps could help offset these pressures.

Gold reserves offer a relatively untapped resource for FX intervention. The central bank has previously used foreign exchange reserves and interest rate adjustments to manage volatility. Now, it may be turning to its gold holdings for additional flexibility.

How Might the Market React to This Policy Shift?

Barclays forecasts that the lira will continue to depreciate as a tool for inflation stabilization. The bank notes that the central bank has sufficient foreign exchange reserves to support this strategy. The firm expects the USD/TRY rate to reach 50.25 by the end of 2026.

Gold prices have been under pressure in recent weeks, with spot prices declining for ten consecutive sessions. This decline has been linked to rising real interest rates and a stronger dollar. Any move to use gold in FX markets could influence market dynamics.

What Are Analysts Watching for Clarity and Implications?

Analysts are closely watching how the central bank will execute the gold-for-foreign currency transactions. The logistics of such moves—and whether they are temporary or part of a broader strategy—will shape market expectations. A clear communication strategy will be essential.

Investors are also assessing the long-term sustainability of this approach. While gold reserves offer a valuable buffer, prolonged use could affect the central bank’s balance sheet. The impact on inflation and import costs will be key indicators of success.