Turks Buying Gold, Uncertain of Their Political Future

9 April 2017

by Peter Schiff, Schiff Gold:

A constitutional referendum in Turkey in mid-April could bring the most significant change to the county’s political structure since the introduction of its multiparty election system in 1945. With all of the uncertainty surrounding the vote and a shaky monetary system, Turks are starting to buy gold in large quantities. Turkish gold imports surged 17-fold to 28.2 tons in March, according to a Reuters report, as Turks seek out the safe haven inherent in precious metals.

Polling indicates a close and contentious vote, and passage of the referendum would create a “Turkish-style” executive presidency and vastly increase the president’s powers. According to Human Rights Watch, two important provisions would immediately go into effect.

“The president would have increased authority over the body that administers the judiciary and controls the appointment of judges and prosecutors, and the prohibition against the president having a formal party affiliation would be lifted. The courts in Turkey are already under political influence and these changes would further reduce judicial independence.”

The surge in Turkish gold imports began in early December after President Tayyip Erdogan called on Turks to convert their foreign currencies – especially dollars – into gold. The president made the move hoping to prop up the lira. He also called for interest rate cuts, drawing the ire of Turkish central bankers who’d been holding rates high to combat inflation.

“We should look at the world,” Erdogan said. “Is the interest rate high in America, Japan, or Europe? While it is so low there, why are our interest rates wandering around 14, 15, or 16 percent? We will pave the way for entrepreneurs with low interest rates. High interest will only spur the financial sector, and I will also say this for public banks.” Erdogan embraced the same Keynesian conventional wisdom that has inflated bubbles and created spiraling debt levels all over the world.

Erdogan embraced the same Keynesian conventional wisdom that has inflated bubbles and created spiraling debt levels all over the world.

After the president’s speech, gold imports into Turkey rose 688% compared to December 2015, hitting 36.7 tons. They have continued to rise year-on-year ever since. With significant changes to the government looming, and no end in sight to instability in their financial system, Turks have turned to gold.

We saw a similar phenomenon after the Brexit vote threw the United Kingdom into a sea of uncertainty – the Brits turned to gold, some converting as much 50% of their net worth into gold after the decision to leave the EU.

This should come as no surprise. As Reuters put it, “Gold is seen as a safe place to park assets during times of uncertainty.” Historically, gold and silver have helped preserve wealth in times of upheaval and chaos.

While the US doesn’t have significant restructuring of its governmental system on the horizon, Americans still face a high level of uncertainty. It remains unclear how the Trump presidency will play out. Economic growth shows signs of stagnancy. The EU’s future seems shaky and that would certainly impact the US economy. North Korea continues its saber-rattling. Knowing that gold is a safe place to go, perhaps Americans would do well to follow the lead of the Turks.

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