“Institutions are seeking new ways to introduce more user friendly tools in an effort to make it easier for consumers to invest in gold, as there is a clear tendency towards putting money in gold rather than cash or stocks,” she observed.Last year, in fact, saw a 7 percent rise in gold investment around the world, contrary to significant drops in jewelry consumption and industrial gold demand, at 20 percent and 16 percent lower year on year, respectively, as gold prices reached record highs. As the global financial crisis took a toll on almost all markets around the world, people rushed to put their assets in gold in a bid to protect their wealth, following the widely held belief that gold is a “safe haven.”
The gold situation was weak in Turkey last year, with demand for gold nearly halving. Gold investment was down by 40 percent, 7 percent less of a drop than that of jewelry consumption. This year, however, the situation began to ease in line with a robust recovery in the markets. Gold jewelry consumption rose by 12 percent, to 18.4 tons, in the first quarter of the year compared to a year earlier. Retail investment in gold bullion, including purchases of coins and bars, more than doubled during this period, up by 104 percent to reach 8.5 tons, a clear indication that people prefer putting their money in gold, though still far from enjoying bright economic conditions to spend much on jewelry.
This trend has been bolstered by the introduction of new gold products by banks and financial institutions. Recently Turkey’s leading bank, Garanti Bankası, and jewelry maker Atasay have joined forces to introduce Altın Bonus, a gold reward card. The İstanbul Gold Refinery A.Ş. (İAR) has been working on a project in cooperation with banks to utilize gold as collateral for loans. And now more people are putting their money in gold-based deposit accounts rather than purchasing physical bullion. Participation bank Kuveyt Türk has also introduced a new product, Altınçek (gold check), as an alternative to gold coins to be given as a gift at weddings.
Does this mean banks realize the power of gold as an investment tool more now? According to Göksel, banks both in Turkey and worldwide have been well aware of this fact for a long time, but this hasn’t yet led to gold being included in most investment portfolios. Studies show that portfolios which contain even a small allocation of gold are proven to be generally more robust and show improved stability and predictability of returns. However, with a shift towards gold now in line with a loss of confidence in the euro and dollar due to the economic meltdown, financial institutions are beginning to increase the variety of the gold products on offer.
“For instance, recently one gram of gold was offered for sale as an alternative to a quarter-piece coin [çeyrek altını],” she recalled. As prices have risen over the last few months, people have started to face difficulties in affording even the smallest gold coin, çeyrek altını, which weighs nearly 1.7 grams, resulting in a stagnation in jewelers’ businesses. “This is a natural response of the producers to current economic conditions. They re-price their products in accordance with consumer demand,” said Göksel.
Turkey competes with only Italy in jewelry design
Turkey has expanded its presence in the global gold market over the past 10 years. The country is currently among the top three gold jewelry producers, along with Italy and India, and it was the world’s 11th largest gold jewelry exporter in 2008. Its gold exports jumped from $384.2 million in 2000 to a robust $1.6 billion in 2008, though with the global credit crunch it suffered a nearly one-third year on year drop last year. During this period, gold imports were also down by one-fourth.
Turkey’s rising prominence in the sector stems not only from its production capabilities but also from its proficiency in design, Göksel stressed. “There is a really robust gold sector in Turkey. We are competing with Italy in design,” she said. To further boost jewelry design, the WGC has recently published a book on design that will be used at some of the design faculties.
Some 70 percent of Turkish gold jewelry is exported, while the remaining 30 percent goes to domestic customers. The United Arab Emirates (UAE) was the biggest purchaser of Turkey’s gold jewelry last year, buying $348.9 million, while the US followed with $120 million in Turkish gold jewelry imports.
“Jewelry from Turkey is coveted in Dubai. One reason for this is that our designs are close to their tastes. This market is important as it is considered to be a gateway to the Middle East.” said Göksel.
The annual gold jewelry production capacity in Turkey is 400 tons, though only around 250 to 300 tons of it is utilized. The gold jewelry sector in Turkey provides jobs for 250,000 people.
The WGC is a commercially driven organization and is focused on creating a new prominence for gold. It has its headquarters in London and operations in the key gold demand centers of India, China, the Middle East and the United States.
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