Why is Turkey dumping gold wildly as the US and Iran go to war?

Ask AI · Why did Turkey choose gold swaps instead of directly selling gold?

Recently, a shocking figure surfaced in the global financial markets: the Central Bank of Turkey reduced its gold holdings by approximately 58.4 tons in just two weeks, worth over $8 billion. In the week of March 13, it decreased by 6 tons, and in the week of March 20, it plummeted by 52.4 tons.

The Central Bank of Turkey’s weekly data clearly outlines this picture: from March 13 to 19, the market value of gold reserves fell from $134.1 billion to $116.2 billion, evaporating nearly $18 billion in a single week; meanwhile, foreign exchange reserves (excluding gold) rose by $5.8 billion during the same period.

Amidst the decline and rise, the operation of “exchanging gold for foreign exchange” couldn’t be clearer.

Over the past decade, Turkey has been one of the world’s most aggressive gold buyers, accumulating gold reserves from 116 tons in 2011 to over 820 tons.

After working so hard to build up its reserves, why did it suddenly sell off a large amount in just two weeks?

The answer is simply three words: to survive.

The Trigger: A War That Pushed Turkey Into a “Perfect Storm”

On February 28, the United States and Israel launched a military operation codenamed “Epic Wrath,” bombing Iranian nuclear facilities, military bases, and government buildings.

Iran retaliated immediately and effectively blocked the Strait of Hormuz—through which 20% of the world’s seaborne oil and 20% of LNG trade pass.

Brent crude oil skyrocketed from $73 per barrel before the conflict to over $106, an increase of more than 40%, with the International Energy Agency defining it as “the most severe global energy security challenge in history.”

For most countries, this was just a shock; for Turkey, it was a survival crisis.

Turkey relies on imports for 90% of its oil and 98% of its natural gas. For every $10 increase in oil prices, the current account deficit rises by $4.5 to $7 billion. Based on post-war oil prices, the annual energy import bill could soar by about $15 billion.

An even more lethal blow came on March 24—Israel bombed Iran’s South Pars gas field, and Iran immediately halted natural gas exports to Turkey. Iran is Turkey’s second-largest pipeline gas supplier, accounting for about 13% to 14% of its gas imports. The 25-year contract for this pipeline is set to expire in July 2026, and the war directly turned the prospect of renewal into a mirage.

In simple terms, Turkey’s situation is: energy bills suddenly doubled, key gas sources were cut off, and there was no equivalent alternative in the short term.

The Transmission Chain: Foreign Exchange Reserves Couldn’t Hold Up

Energy imports must be settled in dollars, leading importers to scramble for dollars, causing the lira to plummet.

In the 16 trading days since the conflict began, the lira set a historical low against the dollar 11 times, reaching about 44.35 lira to 1 dollar on March 25.

Behind this was a rapid withdrawal of foreign investors: $4.7 billion flowed out of Turkish bonds in three weeks, $1.2 billion from the stock market, and positions in arbitrage trading shrank from a record $61.2 billion in January to below $45 billion.

The Central Bank of Turkey was thus forced to launch a “lira defense.” In the first week of March alone, it sold over $8 billion in foreign exchange. In the three weeks up to March 19, the central bank consumed approximately $25 to $30 billion in foreign exchange reserves. After accounting for swaps, net reserves plummeted from $54.3 billion before the conflict to $43 billion.

Turkey’s weekly data fully records this process: foreign exchange reserves (excluding gold) fell from $55 billion on March 6 to $47.8 billion on March 13—first using foreign exchange ammunition. By March 19, foreign exchange reserves rebounded to $53.6 billion, but gold reserves simultaneously plummeted from $134.1 billion to $116.2 billion—foreign exchange ammunition was almost exhausted, and gold began to be used.

This is a textbook example of an “emergency defense sequence” of using foreign exchange first and then gold.

Image: Foreign exchange data released by the Central Bank of Turkey

Gold Swaps: Why “Borrow” Instead of “Sell”?

The key to understanding this operation is: over half of Turkey’s gold reduction was achieved through swaps, rather than direct sales.

The essence of a gold swap is “exchange gold for foreign exchange, redeem at maturity.” The central bank hands over gold to a counterparty (usually a primary investment bank) in exchange for an equivalent amount of dollars, while signing a forward contract to buy back the gold later at a slightly higher price. It is a form of short-term financing, not a permanent liquidation.

The central bank chose swaps over outright sales for at least three reasons.

First, to maintain long-term positions. If it believes that the surge in oil prices is only a temporary shock, swaps can address urgent needs, allowing for future repurchase of gold and preventing a decade’s accumulation from being destroyed in an instant.

Second, to reduce the impact on gold prices. Dumping 60 tons of gold directly could trigger a cliff-like crash in the market, which would, in turn, severely devalue its remaining gold reserves of over $100 billion. Swaps, conducted in the over-the-counter market, have much less impact.

Third, to buffer domestic political concerns. Gold is seen as an “anti-inflation totem” in the minds of the Turkish public, and announcing a massive gold sell-off could easily trigger panic, while swaps can technically maintain a certain level of ambiguity.

The rapid completion of this operation in two weeks benefited from a key preparatory arrangement: Turkey had stored about 111 tons of gold worth approximately $30 billion at the Bank of England. This gold can be used for foreign exchange interventions without logistical constraints—there’s no need for cross-border transportation of physical gold, as it can be directly pledged and liquidated in the City of London.

Pressure on Gold Prices

Turkey has a historical pattern: selling gold during crises and buying it back afterward.

During the 2018 lira crisis, the 2020 pandemic shock, and the 2023 earthquake—each time the central bank reduced gold holdings to provide liquidity, but then resumed accumulation. Analysts generally believe that the operation in March 2026 continues this pattern.

However, this judgment has a core premise: the war cannot be prolonged.

Swap agreements carry holding costs and interest. If the war continues, energy prices anchor above $100, and Turkey’s foreign exchange earning capacity cannot cover the soaring energy bills, then these “temporary swaps” will never be redeemed, essentially becoming “permanent fire sales.”

Therefore, in the coming weeks, if the fighting continues, Turkey will need to continue turning its $135 billion in gold reserves into a lifeline.

While Turkey prefers to use “pledged” gold to obtain foreign exchange liquidity, these transactions still substantially increase downward pressure on the gold market. In the London over-the-counter market, when the Central Bank of Turkey transfers dozens of tons of gold as collateral to international trading counterparts (such as investment banks) in exchange for dollars, these receiving financial institutions typically engage in corresponding short-selling or selling operations in the spot or futures derivatives markets to hedge their position risks.

As a result, the liquidity of this gold will ultimately transmit to the market, indirectly increasing supply and driving down prices.

Conclusion

The Central Bank of Turkey’s disposal of 60 tons of gold in two weeks was not panic or speculation, but rather a rational self-rescue of a country highly dependent on energy imports in the face of foreign exchange exhaustion, lira depreciation, and gas supply cut-offs after its allies bombed its largest energy supplier.

Image: The market is crazily shorting the lira; on one hand, it bets that the conflict will not end in the short term, and on the other hand, it bets that Turkey will ultimately not hold up.

As the prospects of the conflict worsen, Turkey still needs to continue to withstand the pressure.