Written by: Le Ming

A recent figure that has astonished global financial markets has surfaced: the Central Bank of Turkey reduced its gold holdings by approximately 58.4 tons in just two weeks, worth over $8 billion. Specifically, it reduced its holdings by 6 tons in the week of March 13th and plummeted by 52.4 tons in the week of March 20th.

The weekly data from the Central Bank of Turkey clearly illustrates this picture: from March 13 to 19, the market value of gold reserves plummeted from $134.1 billion to $116.2 billion, a loss of nearly $18 billion in a single week; while foreign exchange reserves (excluding gold) rebounded by $5.8 billion during the same period.

Between the rise and fall, the traces of "exchanging gold for foreign exchange" are all too obvious.

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

Why would someone so painstakingly accumulate wealth only to suddenly sell it off on a large scale within two weeks?

The answer is just three words: Survive.

The trigger: A war that plunged Türkiye into a "perfect storm"

On February 28, the United States and Israel launched a joint military operation codenamed "Epic Fury," which included airstrikes on Iranian nuclear facilities, military bases, and government buildings.

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

Brent crude oil surged from $73 per barrel before the war to over $106, an increase of more than 40%, which the International Energy Agency defined as "the most serious global energy security challenge in history."

For most countries, this is just a shock; but for Turkey, it is an existential crisis.

Turkey imports 90% of its oil and 98% of its natural gas. A $10 increase in the price of oil per barrel would increase the current account deficit by $4.5 billion to $7 billion. Based on post-war oil prices, the annual energy import bill could surge by approximately $15 billion.

The more devastating blow came on March 24 – an Israeli airstrike on Iran's South Pars gas field, prompting Iran to halt natural gas exports to Turkey. Iran is Turkey's second-largest pipeline gas supplier, accounting for approximately 13% to 14% of its gas imports. The pipeline's 25-year contract was set to expire in July 2026, and the war directly dashed any hopes of renewal.

In short, Turkey is in a predicament: its energy bills have suddenly doubled, key gas supplies have been cut off, and there is no equivalent alternative in the short term.

The transmission chain: Foreign exchange reserves couldn't hold on any longer.

Energy imports are settled in US dollars, leading to a frenzy among importers to snap up dollars and causing the lira to plummet.

In the 16 trading days since the outbreak of the conflict, the lira has hit a record low against the US dollar 11 times in a row, reaching about 44.35 lira to 1 US dollar on March 25.

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

The Turkish central bank was thus forced to launch a "lira defense war." In the first week of March alone, it sold over $8 billion in foreign exchange. In the three weeks ending March 19, the central bank had depleted approximately $25-30 billion of its foreign exchange reserves. Net reserves, after deducting swaps, plummeted from $54.3 billion before the war to $43 billion.

Turkey's weekly data fully documents this process: foreign exchange reserves (excluding gold) fell from $55 billion on March 6 to $47.8 billion on March 13 – foreign exchange ammunition was used first. By March 19, foreign exchange reserves had rebounded to $53.6 billion, but gold reserves simultaneously plummeted from $134.1 billion to $116.2 billion – foreign exchange ammunition was running out, and gold was being used.

This is a textbook example of an emergency defense sequence of "using foreign exchange first, then gold".

Chart: Foreign exchange data released by the Central Bank of Türkiye

Gold swaps: Why "pledge" instead of "sell"?

The key to understanding this operation is that Türkiye reduced more than half of its gold holdings through swaps, rather than by selling directly.

The essence of a gold swap is "exchanging gold for foreign currency, with redemption at maturity." The central bank delivers gold to a counterparty (usually a primary investment bank) in exchange for an equivalent amount of US dollars, while simultaneously signing a forward contract agreeing to buy back the gold at a slightly higher price in the future. It is a short-term financing activity, not a permanent liquidation.

The central bank's choice to use swaps instead of outright sales reflects at least three considerations.

First, maintain long-term positions. If you judge that the surge in oil prices is only a temporary shock, swaps can provide immediate relief, and you can redeem the gold later to avoid losing ten years of accumulated wealth.

Second, it reduces the impact on gold prices. A direct dump of 60 tons of gold would be enough to trigger a precipitous drop in the market, significantly reducing the value of its remaining gold reserves of over $100 billion. Swaps, conducted quietly in the over-the-counter market, have a much smaller impact.

Third, it provides a buffer at the domestic political level. Gold is seen as an "inflation-fighting symbol" by the Turkish people, and announcing a large-scale gold sale could easily trigger panic, while swaps can technically maintain a certain degree of ambiguity.

The operation was completed so quickly within two weeks thanks to a key pre-planning: Turkey held approximately 111 tons of gold, worth about $30 billion, in the Bank of England. This gold could be used for foreign exchange intervention without logistical constraints—it could be directly pledged and converted into cash in the City of London without the need for cross-border transportation of physical gold.

Pressure on gold prices

Türkiye has a historical pattern: sell gold during crises and buy it back after crises.

The 2018 lira crisis, the 2020 pandemic, and the 2023 earthquake—each time, central banks reduced their gold holdings to provide liquidity, only to subsequently resume accumulation. Analysts generally believe that the actions taken in March 2026 continued this pattern.

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

Swap agreements come with holding costs and interest. If the war continues, energy prices remain anchored above $100 for an extended period, and Turkey's foreign exchange earnings are insufficient to cover soaring energy bills, then these "temporary swaps" will never be redeemed, effectively becoming a "permanent fire sale."

Therefore, if the fighting continues in the coming weeks, Türkiye will need to continue to rely on its $135 billion gold reserves as a lifeline.

Although Turkey tends to use gold as collateral 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 Turkish central bank transfers tens of tons of gold as collateral to international counterparties (such as investment banks) in exchange for US dollars, these financial institutions receiving the gold typically engage in corresponding short selling or selling operations in the spot or futures derivatives markets to hedge their own position risks.

Therefore, the liquidity of this batch of gold will eventually be transmitted to the market, indirectly increasing supply and depressing prices.

Conclusion

The Turkish central bank's divestment of 60 tons of gold in two weeks was not a sign of panic or speculation, but rather a rational self-rescue effort by a country heavily reliant on energy imports after its allies bombed its largest energy supplier, facing a triple blow of foreign exchange depletion, a plummeting lira, and a gas supply disruption.

The market is frantically shorting the lira, partly betting that the war won't end anytime soon, and partly betting that Türkiye will eventually give out.

As the prospects for war deteriorate, Türkiye will need to continue to withstand the pressure.

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