Strategic Hedging in a Turbulent Landscape: Navigating Turkey's Currency Crisis with Gold and Hard-Currency Assets

Turkey's currency crisis has deepened in 2025, marked by relentless lira depreciation, stubborn inflation, and a central bank struggling to balance price stability with economic growth. For investors, this environment presents both risks and opportunities-particularly for those seeking to hedge against currency volatility through gold and hard-currency assets.

The Central Bank's Dilemma: Rate Cuts and Inflationary Pressures

The Central Bank of the Republic of Türkiye (CBRT) has slashed its benchmark interest rate by 250 basis points in 2025, reducing the 1-week repo rate to 40.5% by September, according to FocusEconomics. While this easing aims to curb inflation, which stood at 33.29% in September 2025, according to Trading Economics, the CBRT faces a paradox: lower rates risk fueling further lira depreciation. The USD/TRY exchange rate hit 41.846 in October 2025, a record low, according to ValutaFX, with forecasts predicting a 12–15% decline by year-end, per Naga. Business Turkey Today notes that Morgan Stanley even projects the rate to reach 43 by December 2025.

This depreciation is compounded by structural challenges, including political instability and a reliance on imported energy. For instance, the arrest of Istanbul Mayor Ekrem Imamoglu in October 2025 triggered a sharp sell-off in the lira, according to Disruption Banking, underscoring the fragility of market confidence.

Gold: A Largely Undervalued Hedge

As the lira weakens, gold has emerged as a critical safe-haven asset. By October 2025, the price of 24K gold in Turkey surged to 182,902.89 Turkish lira per ounce-a 97% increase from January's 92,837 lira level, according to Exchange Rates. This surge reflects both inflationary pressures and a loss of trust in the lira. Notably, gold prices in Turkish lira have outperformed U.S. dollar-denominated forecasts. While Morgan Stanley anticipates gold prices to dip below $2,700 per ounce by year-end, as reported by Turkiye Today, the lira's depreciation ensures that local investors continue to pay a premium for gold.

The CBRT's monetary easing further amplifies gold's appeal. With inflation expected to remain above 25% through 2025, Bloomberg reports that the central bank is signaling more rate cuts, strengthening gold's role as a hedge against currency erosion.

Hard-Currency Assets: A Shift in Corporate Behavior

Hard-currency investments in Turkey have evolved significantly in 2025. Corporate demand for foreign exchange (FX) is now driven by import needs in sectors like energy, steel, and automobiles, rather than speculative hoarding, according to PA Turkey. The share of foreign currency deposits in corporate accounts fell from 60.7% in June 2023 to 35% in June 2025, according to BBVA Research, reflecting a structural shift toward FX risk management.

Net exporters, meanwhile, have become key suppliers of FX, stabilizing the market to some extent, as PA Turkey noted. However, with the lira projected to weaken further, investors are increasingly prioritizing hard assets. The International Monetary Fund has warned against large minimum wage hikes, which could exacerbate inflation and FX volatility, a point reported by Naga earlier, reinforcing the case for hard-currency holdings.

Strategic Hedging Opportunities

For investors, the interplay between lira depreciation and asset performance offers clear hedging strategies:
1. Gold Accumulation: Given the lira's projected decline, gold remains a compelling hedge. Investors should consider allocating a portion of their portfolios to physical gold or gold-linked ETFs, particularly as local prices continue to outpace global trends.
2. Hard-Currency Exposure: Diversifying into USD or EUR assets-whether through foreign bonds, real estate, or equities-can mitigate lira risk. The CBRT's policy trajectory suggests further depreciation, making early positioning critical.
3. Currency Derivatives: FX forwards and options can lock in favorable rates, especially for businesses exposed to import costs. With the lira's volatility persisting, these instruments offer a layer of protection against sudden swings.

Conclusion

Turkey's currency crisis is a double-edged sword: while it poses significant risks to local savers and businesses, it also creates fertile ground for strategic hedging. Gold and hard-currency assets stand out as robust tools to navigate this volatility. As the CBRT continues its delicate balancing act, investors who act decisively can turn uncertainty into opportunity.