Golden opportunity

A new government scheme is offering a return on public gold to shore up Central Bank reserves and bolster the economy. Here are the fundemental details.

Detailing the gold bonds scheme bidding to shore up central bank reserves

1 What are gold bonds and gold-backed lease certificates?

The Undersecretariat of the Treasury is offering gold bonds as two products for individual investors: gold bonds and gold-backed lease certificates. The gold bond suitable for the investor who wants to earn interest is a two-year term product that pays a 1.20% coupon rate every six months, totaling 2.4% annually. It also pays interest. A gold-backed lease certificate is for customers who do not want to earn interest. Instead, a revenue-sharing method is adopted based on the purchase and sale of real estate and the distribution of the rental income obtained from its lease to the rental certificate owners.

2 When will the first exports be made?

Ziraat Bank, currently the only intermediary bank, is collecting weekly requests for the time being. Book building occurred on Oct. 2-6 and the Undersecretariat of the Treasury will issue the first export of gold bonds and gold-backed lease certificates to meet all requests in line with demand. Requests will be collected every week for four weeks and exported on Wednesdays.

3 Will all types of gold be accepted?

Only 22- and 24-carat gold will be accepted. These are gold coins in the size of a quarter, half, full, two-and-a-half and five as well as bracelets, necklaces and nuggets. ‘Resat’ gold coins will not be accepted. In addition, jewels with valuable or worthless stones will not be accepted. Customers must individually take the gold to bank branches.

4 How will the gold be valued?

Refinery experts will make the valuations. Accepted gold will be valued on the basis of its own degree of purity without a discount. If customers agree to use gold as a bond or a lease certificate, 24 carat, namely fine gold equivalent – and not cash – will be accepted as demand for gold deposit accounts. Gold bonds and certificates will not be physically printed. Anyone who brings gold to a bank branch will not be handed a bond. Rather, it will be stored on behalf of the investor at the Bonds Central Registry Agency.

5 How will the bond price be determined?

One gram of gold will be priced in the form of thousands of bonds. Ziraat Bank will be constantly announcing the price during back purchases. The bank has already started announcing purchase and sale prices for its gold deposit accounts. Repurchases to be made in the first three months will be taken at a discounted price of 1.5%. Subsequent purchases after the third month will be without discount. Bonds repurchased by Ziraat Bank will not be sold back to customers. The delivery of physical gold will take place at the branches after the due date. If a new bond is issued at the end of the maturity date, existing investors will be able to request further bonds.

6 How will the yield be paid?

In the first six months, a return of 1.20% or a rental income will be given. This yield will be paid in Turkish lira. Coupon or rent income will also be collected in Turkish lira at the end of the maturity. Physical gold will be given to those who apply to the branches between the dates that the Treasury announced as the physical gold demand period, a week before the due date. For those who do not want physical gold, a recorded in grams of gold will lie on their deposit accounts. The investors will be able to earn gold investments by getting coupon / rent income every six months in return for the two-year investments. They will be able to partially or entirely compensate this income or their capital and bond income processed before the due date in Turkish lira.

7 How much is the tax?

The tax rate is set at 0%, according to a Cabinet decision, specifically for this bond and rental certificate. Apart from the banking system, there is also a state guarantee for this product. Any banking transaction commission or service fee will not be charged to accounts opened.

8 How much gold is estimated to be ‘under the pillow?’

It is estimated to be around 2,200 tons. This amounts to about $100 billion. The banks have been unsuccessfully trying to put this amount into the system. The new model, which has been put into action by the Treasury, is targeting a figure in excess of this number.

9 What was the result of previous similar attempts?

Since 2010, Turkish banks have been organizing “Golden Days” to allow scrap gold to enter the economy. The monetary value of the gold so far collected by the banks remained at only $2.5 billion. That the amount was below target is partially because the banks’ valuation for the non-standard gold was lower than the value given by goldsmiths. During banks’ golden days events, experts evaluated all kinds of gold and gold jewelry. For the Treasury’s Golden Bonds and Certificates, only 22- and 24-carat gold will be accepted. Determining the price of gold, which mainly exists in the form of jewelry, will play a key role in the success of the system.

10 What are the government’s expectations?

The gold under the pillow will enter the system and contribute to the Central Bank’s reserves, which are already composed of foreign currency and gold. The bank has a total of $110 billion in reserves, which is not enough. If the gold is kept in the Central Bank, it will be a serious reserve source. And thus reduce the vulnerability of the entire banking system if the practice works.