Record gold sales to Iran are more than making up for Turkey its slide in exports to Europe, steadying its current account deficit and boosting lira bonds, reports said on Wednesday.
Sales of precious metals to Iran jumped to $6.2 billion this year through July from $21.9 million in the same period last year, accounting for 70% of Turkey’s increase in exports this year, Bloomberg reported.
The transactions helped narrow the current account gap to 8.3% of gross domestic product (GDP) from 10% in 2011, despite sales to the European Union dropping by $3.4 billion. Yields on two-year lira bonds fell 12 basis points to 7.62% Tuesday, extending the biggest drop among major emerging markets this year to 339 basis points.
According to Moody’s Investors Service, Turkey’s current account shortfall is the world’s largest behind the US and makes the country the most vulnerable in developing economies to any deterioration in global investor sentiment. While the country is diversifying its exports away from Europe to nations in the Middle East and North Africa, gold sales come at a time when its neighbour grapples with trade sanctions.
“Turkey still remains vulnerable to an external demand slowdown caused by the crisis in Europe,” Inan Demir, chief economist at Finansbank AS in Istanbul, said in a telephone interview with Bloomberg. “When you talk about diversification of exports and precious metals such as gold are excluded, the diversification looks much less impressive.”
The lira lost 18% of its value in 2011, the biggest loss globally, and two-year bond yields climbed 390 basis points, the most since 2006, as the central bank increased interest rates to reverse an import boom that threatened to destabilise the $770 billion economy.
Turkey sold more goods to Iran than to any other country in the first seven months, with exports almost quadrupling on an annual basis to $8 billion, more than the $7.9 billion of goods sold to the whole of Africa, including Libya, Egypt and Tunisia, according to the statistics agency data.
Turkey imported $7.7 billion of oil, gas and other goods from Iran during the period.
At the same time exports to Europe are declining. Germany bought $7.7 billion of Turkish goods in the first seven months, a decrease of 5.6 percent from a year ago. Exports to Italy shrank by 27 percent to $3.7 billion and to France by 12 percent annually to $3.6 billion, government data show.
Turkey has assured the US government it will cut purchases of oil from Iran by 20 percent this year. The government denies it is exporting gold to pay for Iranian oil and natural gas.
Iranian business people are receiving subsidized rates on euros, then buying gold in Turkey and exporting it back to Iran, Milliyet newspaper reported on 2 September.
Wealthy Iranians in Turkey are collecting gold on behalf of the Iranian central bank and exporting it to Iran, the Istanbul-based Zaman newspaper said 11 July. Iranians in Dubai and India are also collecting gold and sending it to the central bank, Zaman said, citing a Turkish economy administration official it didn’t identify. Some gold is being imported into Turkey from Europe, refined or reshaped and then sent to Iran, Zaman said.
“We think the gold exports are actually concentrated on Iran as a method of payment,” Gulay Girgin, an analyst at Istanbul-based broker Oyak Securities, said by email on 31 August.
Iran, the third-largest supplier in the Organisation of Petroleum Exporting Countries, is pumping less crude than Iraq for the first time in 20 years.
Turkish firms are probably paying Iranian intermediaries for oil and gas in hard currencies, Demir of Finansbank said. The cash is then used to buy gold which is shipped to Iran, he said.
Turkey’s current account deficit, which includes trade as well as financial flows, shrank for an eighth month in June to $63.5 billion on a 12-month rolling basis. Without the $6.2 billion of precious metals exports to Iran, the shortfall would have been 0.7 percentage point of GDP higher at 9.1%, central bank data show.
While Turkey has agreed to cut oil imports from Iran, its officials have said they aren’t bound to abide by broader sanctions imposed by the US and EU, which are stricter than those of the UN.
Iran supplies about 40% of Turkey’s oil, making it the largest single source for the fuel, according to the Energy Ministry. The country pays about $6 a barrel less for Iranian oil than Brent crude, Goldman Sachs Group Inc. said in a report on 12 March.