Turkish gold market decoupled from global market dynamics

With respect to jewelry, the Turkish gold sector does not operate under the same dynamics as other markets. Summer, traditionally a slow time for jewelers internationally, is a boom time for jewelers in Turkey as the country has a long tradition of giving gold at wedding and other celebrations that abound during the summer months.

“The prices are just a little bit down now as a result of global markets and the downturn in demand for jewelry,” said Mustafa Şahin of Z Şahin Kuyumculuk.

Rober Taş, a member of the board of property owners at Kuyumcukent, a goldsmiths' complex in Istanbul, largely agreed with Şahin. Taş, who is also the owner of Çetaş Jewelers, a large producer of jewelry in Turkey which has more than 200 sales points around the country, said his business was down by about 15 percent.

But when compared to other international markets, Taş says that Turkey is faring quite well. While noting that there was a considerable decrease in capacity utilization in the gold business during the first two months of the year, by March, when Istanbul hosted a large jewelry show, production increased. He said this applied for all forms of jewelry.

Turkey, the world's fourth-largest gold market and third-largest producer of gold jewelry, has long seen gold as a traditional measure to hedge against inflation and secure itself from more risky investments.

“Turkish people love jewelry,” Taş explained, “Even the poor buy gold as an investment.” Turks, he said, purchase six times the world average of gold jewelry.

The country's exports are also dramatically increasing as the country is at present one of the largest gold exporters in the world. In recent years, in an attempt to transform the Turkish jewelry business into a global leader, the government has introduced all kinds of incentives to the market, considerably liberalizing it. The government has stated that they hope to see Turkey become the world's largest exporter of gold jewelry in the coming years. Italy, the world's largest exporter at present, has seen its share of global exports slip over the past several years.

Recent articles have suggested that demand from Turkey arising from celebrations has largely driven the Dubai gold traders business. Celebrations including events to mark the birth of children have helped several Dubai-based traders maintain their exports in the otherwise slow summer months. “We call this a seasonal demand. And Turkey is the most prominent importer from Dubai these days," said Jeffrey Rhodes, CEO of Dubai-based INTL Commodities, as quoted in Emirates Business 24/7.

Bullion also on the rise

According to Reuters, in recent weeks there has been a direct inverse correlation between the value of the dollar and the value of gold, which is not the normal trend as both the dollar and gold have traditionally been seen as safe-haven investments for investors in times of increased market volatility. One gold trader at the Grand Bazaar, who identified himself only as Oğur Abi, told Today's Zaman that at present there was a correlation in Turkey with the İstanbul Stock Exchange (İMKB) and the price of gold: When the İMKB is up, the price of gold is also up. Yesterday, in defiance of international trends, the price of gold continued to increase in Turkey, reaching $965.65 per troy ounce on the open market floor. The İMKB also continued to decouple itself from international markets as the İMKB, having risen much faster than markets around the world, continued to rise as other markets fell. Between 250 and 300 tons of gold jewelry is produced in Turkey annually, and the country imports between 100 and 200 tons.

According to figures provided by the World Gold Council, Turkish consumption of gold has shot up in recent months, and Turkey has gone from a net importer to a net exporter of gold and other jewelry. According to the figures provided, Turkey's largest market was the United States. Countries such as Azerbaijan, Kazakhstan, Kyrgyzstan and Turkmenistan are now increasing their stature on the list. In 2008 Turkey exported $5 billion worth of gold.