Turkey is experiencing a surge in gold smuggling as individuals seek to capitalize on the country’s increasing premium over international markets, driven by import restrictions.
According to Bloomberg, security forces have confiscated approximately 350 kilograms of smuggled gold at border crossings since the beginning of the year, surpassing 60% of the total seized in 2023.
In a notable operation in Van, a province near the Iranian border, Interior Minister Ali Yerlikaya reported the discovery of 88 kilograms of gold bars hidden beneath the seats of a car, valued at over $6 million.
Organized criminal groups, as well as opportunistic travelers, are taking advantage of the situation. Those who manage to enter Turkey can sell gold at a premium of around 7% above international market prices, equivalent to approximately $5,000 per kilogram, based on calculations using prices from Istanbul’s Grand Bazaar.
Under Turkish regulations, travelers are permitted to bring gold or jewelry worth up to $15,000 each into the country for “non-commercial” purposes without declaring it, as stated on the Trade Ministry’s website.
The significant increase in retail demand, coupled with government restrictions on supply, is contributing to the elevated premium observed in Turkey, despite already record-high international gold prices.
Turks have historically relied on gold as a means of gifting and safeguarding their savings, especially during periods of economic instability, such as the recent challenges linked to President Recep Tayyip Erdogan’s unconventional monetary policies, which resulted in a weakening currency and soaring inflation.
The surge in demand prompted the government to implement a quota system for bullion imports last August, aimed at reducing the current account deficit. However, instead of dampening demand, this move led to a decrease in gold supply and an increase in local premiums. Demand remained strong due to negative real interest rates, higher-than-expected inflation rates, and political uncertainty surrounding upcoming elections.
To meet the heightened demand, the Turkish State Mint, which holds a monopoly on the production of standardized “Republic Gold” coins, has increased its production capacity significantly. Deputy General Director Mehmet Hekim stated that the Mint is operating double shifts seven days a week, with daily output nearly doubling in recent weeks to 700-800 kilograms.
While Hekim anticipates a decline in demand during the Muslim holy month of Ramadan as people spend more time at home, Mehmet Ali Yildirimturk, Vice-President of the Istanbul Jewelers, Goldsmiths, and Moneychangers Association, remains optimistic about the outlook. Yildirimturk notes a scarcity of sellers in the current market, indicating sustained demand driven by numerous small-scale buyers, which continues to drive prices higher.