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Will Turkey Strike Gold?

December 4, 2014

Gold is just one of the many metals existing naturally on the earth’s outer layer; however, without a doubt, it has always been the most cherished one. Men first started using gold coins in 550 BC in Lydia, a province of modern-day Turkey, under King Croesus, and these coins quickly became an accepted payment medium for merchants and mercenary soldiers around the Mediterranean. Since then, and for 2500 years, men never stopped respecting gold. Yes, due to its physical properties, it is the perfect material to create beautiful jewelry. But more important than that are its scarcity and desirability. These are what made gold a store of value. A good one? That’s open to discussion. Someone once said, “Back in Shakespeare’s time, an ounce of gold could buy you a good suit. Today an ounce of gold still just buys you a good suit!”

 

All the gold that has been mined throughout human history is still in existence today; this precious metal has always been recycled. As an industry expert puts it, ”If you have a gold watch, some of the gold in it could have been mined by Romans 2000 years ago.” When this is the case, one might wonder how much gold exists above ground in the world today. If all the above-ground gold in the world, which is 171 thousand metric tons, were melted, it actually would fit into a cube with sides of only 20 meters. Not that big, right? However, that cube, with today’s gold price of $1,150 per ounce, would be worth $7 trillion, equal to around 9% the world’s GDP.   

 

There are countries in the world, like India and Turkey, which are relatively more fascinated with the beauty of this yellow metal. Following India, Turkey is the world’s second-largest producer of gold jewelry. If you’ve ever been to Istanbul’s Grand Bazaar, you know what I am saying. But it’s not only about the beauty of it. The massive inflation issues in Turkey until 2002 created a strong tradition of ”trusting more in gold,” a highly liquid investment that hedges you against not only inflation but also the weakness of the currency. Even though the country has been in a single-digit inflation era since 2004, the popularity of gold investment remains.

 

Even though Turkey is such a big user of gold, the country itself never produced gold until 2001. Its own gold was never taken above ground. Rather it imported the raw metal, around 150 tons per year, and processed it. Gold production in Turkey started only in 2001, and the industry since then freed itself completely from the shackles of state ownership, attaining a beautiful commercial dynamic. Annual production that was a mere 1.4 tons in 2001 reached as high as 35 tons in 2014. With this figure, the Eurasian country is today Europe’s largest gold producer. In a couple of years, production is expected to reach 50 tons, which will place the country among the 15 largest gold producers in the world. Turkey’s estimated reserves are currently at 700 tons, but keeping in mind that only 15% of the country is explored up until now, Turkey shines as a highly prominent future major gold producer. And considering that the country’s current account deficit is as high as 6%, the metals and minerals that lay underground carry a noteworthy potential to improve the balances.    

 

Turkey accordingly became one of the most important new gold exploration frontiers in the world and this, of course, raised the investment appetites of foreign mining companies, who rushed to Turkey in the last decade. Today around 85% of the Turkish mining industry is owned by private firms, local and international, and we see Canadian firms (Alacer Gold, Alamos Gold, Canterra Gold, Aldridge Minerals, Pilot Gold, Frontier Pacific, Odyssey Resources, Teck Cominco, and Eldorado Gold), Australian firms (Chesser Resources), and British firms (Ariana Resources, Kefi Minerals, and Stratex International) mining for gold in various parts of the country.   

 

A major part, around 40%, of all the gold produced in the world every year is destined to be stored as bullion coins or bars that are locked in vaults to be then used as an investment tool. Some say gold is an unproductive, lifeless asset and is a tool for going long on people’s fears. However, gold today is a significant part of diversified investment portfolios. In the end, there will always be fearful people around. Therefore gold producers, like Turkey, will always be searching for more of it.    

 

“Not everything that shines is gold,” we say. However, Turkey’s shine seems quite golden these days. 

 

-Fusun

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