Spotlight on the Turkish Gold Market 2021

Chapter 2 - Borsa Istanbul

  • Borsa İstanbul (BIST) Precious Metals and Diamond Markets (PMDM) has been the cornerstone of the Turkish gold market since its founding in 1995 as the İstanbul Gold Exchange.
  • The PMDM is a strictly physical gold exchange, with trading volumes reaching a record high in 2020.
  • Since the regulatory change in February 2021, only members of the PMDM of BIST can import standard and non-standard gold bars.

Development of PMDM of Borsa Istanbul

Prior to the abolishment in 1993 of the Gold Control Act and amendments in Decree numbered 32 concerning the “Protection of the Value of Turkish Currency”, determination of the gold price, gold imports and exports were heavily regulated by the government. Following the liberalisation, 1995 saw the opening of the İstanbul Gold Exchange (IGE), which allowed members of the IGE and the CBRT to import gold.

The freeing up of the gold trade paved the way for other changes, which contributed to a period of rapid growth across much of the Turkish gold market. As a result, there are now an estimated 5,000 fabricators, of which more than 50 employ between 200-1,500 workers, with a further 35,000 gold retail outlets employing around 250,000 people. Finally, some 12,000 work in the country’s gold mining industry, which in 2020 produced 41.5t of gold.

After the formation of the IGE and abolishment of the import duty, the IGE facilitated the flow of gold, adhering to international standards, without limitations. This helped the industry to become more transparent, with flows in and out of the country becoming clearer as there was no longer an incentive to unofficially bring in gold. In terms of the shipments themself, gold bullion exports have averaged 134t/y during the past five years (excluding COVID-affected 2020), while imports during the same window averaged 259t/y.

The IGE further helped promote the development of several gold-based financial products. In particular, it allowed banks to trade in physical gold in a more structured way as opposed to using the over-the-counter (OTC) market. The IGE also helped the trade to take advantage of arbitrage opportunities, for example, during times when Istanbul has traded at a sizeable premium or discount to London. In other words, through membership of the Exchange, the IGE brought together the Turkish commercial banks, gold bullion dealers in Kapalıçarşı (where most tend to be headquartered) and ultimately the CBRT.

After the IGR and İstanbul Stock Exchange merged in 2013, forming the Borsa İstanbul (BIST), Precious Metals and Diamond Markets (PMDM) was established to take responsibility for the activities of the former IGE. Currently, only members of the PMDM of BIST can import standard (of at least 995 purity) and non-standard gold bars. However, prior to regulatory changes in February 2021 (see below), most non-standard gold had been imported outside the exchange to avoid exchange trading and withdrawal fees.

Turkish Gold Bullion Import/Exports

Source: Metals Focus

Key Changes in Legislation & Tax Framework

On February 21, 2021, the Turkish Ministry of Trade made some noteworthy changes to the regulations governing the BIST’s PMDM membership, to which all members must comply, including the import of bullion, according to international criteria on responsible gold guidance. As all gold refineries and/or their affiliated precious metals companies trading at the BIST are members of the Turkish precious metals market, this covers both GDL and non-GDL operations.

BIST’s role in the Turkish Gold Monetisation Scheme

The PMDM has also been closely involved in the Turkish Gold Monetization Scheme, which aims to attract “under the pillow” gold held by Turkish households, estimated at around 3,500t. The principal is for local banks to collect some of this gold, which will feed into gold deposit accounts, that are registered at the PMDM and utilised according to the banks’ requirements. Since their inception in mid-2012, more than 100t of gold has been collected from the public (through to end-2020).

The country’s precious metals refineries play a key role in helping to run this scheme. There are two GDL refineries (Istanbul Gold Refinery and Nadir Metal Refinery) and three non-GDL refineries in Turkey. The two GDL operations provide the assaying experts to the banks who effectively act as gatekeepers before the metal can be refined.

BIST Spot Gold Volumes

Source: Metals Focus, Bloomberg