Record global gold prices increased the value of gold holdings in Turkey by about $300 billion over the past year, strengthening household spending and complicating the central bank’s effort to reduce inflation, according to a Reuters report.
The total value of gold held in Turkey has risen to more than $750 billion, equal to nearly half of the country’s roughly $1.57 trillion economy. Economists say the surge in gold wealth has created a “wealth effect,” allowing households to maintain consumption despite tight monetary policy and high borrowing costs.
Turkey has one of the highest levels of household gold ownership in the world. Gold plays a central role in savings behavior, commonly given as gifts at weddings and passed down through families as a store of value during periods of inflation and currency volatility.
Data from Turkey’s central bank indicate that about $600 billion of the country’s gold is held outside the financial system by households and companies. This practice, often described locally as “under the pillow,” reflects longstanding distrust of financial institutions and a preference for physical assets.
In addition, roughly $80 billion in gold is held in bank deposits and investment funds, while another $80 billion is owned by the central bank as part of its reserves.
The sharp increase in gold prices has encouraged spending on large purchases such as homes and cars. Economists and central bank officials say this dynamic has weakened the impact of interest rate policy because households can finance purchases without relying on credit.
In a recent analysis, the central bank said housing prices have risen faster in provinces with higher levels of gold deposits since late 2023, when global gold prices began to climb. Officials described this pattern as evidence that rising gold wealth is supporting demand even under restrictive financial conditions.
The central bank reduced its benchmark interest rate by 100 basis points to 37 percent in January, a smaller cut than markets expected, as inflation pressures persisted. Monthly consumer prices increased by nearly 5 percent that month, and the bank has since raised its yearend inflation forecast.
Global gold prices have reached record levels amid geopolitical tensions and disruptions to trade, providing relief to many Turkish households after years of high inflation and a weakening currency.
Analysts say the rise in gold wealth has helped offset losses in purchasing power caused by inflation above 30 percent, but it also risks slowing the disinflation process by sustaining domestic demand.
Shop owners report that some consumers are increasingly selling gold to finance first home purchases or vehicle purchases, a shift from earlier years when households often sold property to buy gold as a protective asset.
The combination of strong gold-driven spending and persistent inflation leaves policymakers facing a difficult balance between supporting economic activity and maintaining tight monetary policy to stabilize prices.