What is going on with Turkey’s gold trade?
A peculiar picture has again appeared in Turkey’s gold trade. The export and import of gold bars with the United Arab Emirates (UAE) is at the center of this peculiarity.
Journalist Zülfikar Doğan underlined this situation in his article published on the website Al Monitor in mid-May. Alaaatin Akdaş also wrote about it the other day in daily Dünya, and indeed writing about it became a must after the Turkish Statistical Institute (TÜİK) recently published details of April’s trade figures.
The United States and the European Union placed a trade embargo on Iran in 2010, which extended to the blocking of swift transactions in 2012. Iran tried to break this embargo with the transfer of gold. While one center of this trade was Turkey, the other was the UAE. This seems to have come to an end when the U.S. started to enforce an embargo on the gold trade starting in July 2013.
This is where the peculiarity lies: While Turkey is exporting gold bars it is also importing gold bars. From where? The UAE.
There are three reasons for the need of the gold bar: One is the production of jewelry, another is for savings, and another is as a medium of payment.
According to the calculations I made from the TÜİK figures, Turkey’s imports from July 2013 to April 2017 are roughly 630 tons. Exports in the same period are 556 tons. Net imports are 75 tons. A large part of this gold movement was done with the UAE. In the same period, there have been 256 tons of imports and 135 tons of exports with the UAE. The net import is 122 tons, nearly $3 billion.
The question is this: Why does Turkey import gold bars when the demand for gold coins is being exported (as Turkey is a net importer due to the production of jewelry)? There are no gains and there is no value added, but it is clear some kind of transaction is occurring.
Exports from Turkey to the UAE for the period of the last 12 months were near 100 tons just before the gold embargo of July 2013. Exports from July 2016 to April 2017 reached 95 tons, peaking in November, where imports are around 122 tons.
When you look at numbers, the movement of gold bars with the UAE tells us that there was a serious rise starting from November, when Trump won the presidential election in the U.S. If we take April 2017 as the base, a volume of 70 tons of the 122 tons of imports and 95 tons of exports were realized after November, when Trump won the election. It can be seen clearly in the statistics that a payment related to Iran is being done with gold. When Trump was elected, the gold bar trade accelerated due to his hawkish signals on Iran.
Again, the question arises: How can you make a payment by importing gold and re-exporting it? If you do not collect the cost of the gold you export (and there are no legal obligations to do so) from the same interlocutor or his agent, the gold that was imported will be turned back by exports. The payment for the import will become the actual payment of the trade.
This act has an effect on the balance of payments. If there is a gold export whose cost has not been collected, its effect on the balance of payments should be for the net errors and omissions to be negative. In other words, if there are exports but the revenue is not received it will look like an unknown outflow. But in fact when the gold bar exports of the previous 12 months made a peak with $14 billion in March 2017, net errors and omissions had reached their lowest value at $9 billion.
In the January-April period of this year, four months of net errors and omissions show the tendency of a $6 billion outflow.