Gold in the country can be sold at a price about 7% higher than the international gold price, thus triggering a "smuggling frenzy"...

Due to import restrictions, the premium of Turkey's domestic gold price relative to the international market is increasing, and people are trying to profit from it, leading to a surge in gold smuggling activities in Turkey.

According to a knowledgeable official, so far this year, security forces have seized about 350 kilograms of smuggled gold at border ports, which has already exceeded 60% of the amount they seized in the whole year of 2023. The official requested anonymity as he was not authorized to brief the media.

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Last week, Turkey's Interior Minister Ali Yerlikaya wrote on social media that during a truck inspection in an eastern province near the Iranian border, law enforcement officers found 88 kilograms of gold bars worth more than $6 million under the seat of a car.

According to institutional calculations, organized criminals (or even speculative vacationers) can sell gold at a price about 7% higher than the international market after arriving in Turkey, that is, $5,000 per kilogram.

According to the website of Turkey's Ministry of Trade, tourists can legally bring gold or jewelry worth up to $15,000 into the country for "non-commercial" purposes without declaration.

Domestic supply is tight

The international gold price has reached a record high, but the reason for the rise in Turkey's gold price is the surge in retail demand, which echoes the country's government restrictions on supply.

Turks have long regarded gold as a gift and a tool for preserving value, especially during unstable times, such as the depreciation of the lira and the intensification of inflation. The unconventional monetary policy recently attempted by Turkish President Erdogan has exacerbated instability.

Due to the significant increase in gold demand, the Turkish government announced a gold import quota system last August to narrow the current account deficit.This has suppressed the supply of gold and driven up local gold prices. Driven by negative real interest rates, higher-than-expected inflation, and political uncertainty due to the elections at the end of this month, the demand for gold in Turkey remains hot.

The Turkish State Mint has a monopoly on the production of standardized "Republic gold coins," and the deputy general manager of the factory, Mehmet Hekim, stated that to meet the needs of citizens, the Turkish State Mint operates around the clock, seven days a week, until 1 a.m.

He added that in recent weeks, its daily production has almost doubled, reaching 700-800 kilograms as of Wednesday.

Hekim expects that demand will ease due to people spending more time at home during the Muslim fasting month, but for Mehmet Ali Yildirimturk, the vice-chairman of the Istanbul Jewellers, Goldsmiths, and Currency Exchangers Association, the outlook remains optimistic.

He said, "There are hardly any sellers now. When there are many small-scale buyers, demand arises, and prices skyrocket."