Trade deficit climbs as citizens choose gold
Turkey ran a very high deficit in foreign trade in September, reaching $8.1 billion – an increase of 85% compared with the previous year. The deficit for the first nine months reached $54 billion, an increase of 28% in comparison with the same period in the previous year.
Whenever analyzing foreign trade figures we always emphasize one particular reality: gold imports. Turkey is breaking an all-time record in gold imports this year. The previous highest figure for the first ninemonths of gold imports was $12 billion in 2013. But gold imports for the first nine months surpassed $13 billion for the first time this year. It is likely that gold imports will surpass $15 billion by year-end if this pace continues.
Turkey had exported $6.6 billion of gold in the first nine months of the previous year and imported gold worth $3.5 billion. So there was a surplus of $3.1 billion in the gold trade. But this year exports remained at $5.8 billion and imports soared at $13.2 billion, so a $7.4 billion deficit was recorded. In other words, as the surplus of $3.1 billion last year was zeroed and there was a gold trade deficit of $7.4 billion, there has been a deterioration of $10.5 billion regarding gold trade. But does this indicate a serious situation? Should we be worried as “Our gold imports soared and we put our foreign exchange in gold?” There is no consensus on that. Some approach the issue as if “it’s an increase of wealth” and others think: “Imported gold is a security for both people and the country.”
Citizens drive 80% of gold demand
The daily DUNYA asked Jewelry Exporters’ Association President Ayhan Guner about this acceleration in gold imports and its possible reasons and ramifications.
Guner said the rise in gold imports is nothing to worry about, on the contrary it should be seen as a guarantee. Stating the gold demand from citizens was very strong until the last two months, Guner underlined that 80% of demand was generated by citizens. Guner says: “People prefer to put their savings in gold as they know they can cash the gold anytime they need. So, they can sell their gold immediately in case they are in urgent need. For instance, as we visited a jewelry store of a colleague in Sakarya after Gulf earthquake, people rushed into the place to sell their gold as soon as he opened the store. We ran out of cash before we know it and asked cash from Istanbul to be brought there in an armored car.
Guner underlines that imported gold is a “safety valve” for citizens and for the economy. Guner reiterates that a billion dollars’ worth of smart phones are imported each year but as they are final consumption products they don’t make any contribution to the economy, which is not the case with gold. “Gold is wealth entering the country,” he says and adds: “Gold price per kilogram was $8,500 in 2000. Now its $42,000 and citizens know full well about this value increase and therefore never give up on saving in terms of gold.”
Today’s import s tomorrow’s export
It’s a well-known fact that citizens tend to sell their gold if there is a change in economic conditions and they are in need of cash. In such cases, the gold imports Turkey paid the foreign exchange today bothers us becomes a hero as an asset.
Citizens can take a break in they sell their gold and Turkey can reach an export product and earn foreign exchange through that.
Therefore, it’s better to see gold imports trough this perspective. We import cell phones, automobiles and we can’t reevaluate those choices. But gold is not like that. One that import gold may become an export product.