At the peak of the Turkish currency crisis in mid-August, in addition to general concerns about the state of the local economy, one sector got hit especially hard: Turkish banks, which saw their bonds plunge amid growing concerns that the currency slump would makes it impossible for lenders to repay dollar-denominated debts or rollover maturities.

Zooming on just the recent action shows that weekly holdings reported by the Central Bank of Turkey fell by a whopping 20% since June 15 to 15.5 million ounces according to Bloomberg, with the bulk of the exodus, or $3.3 billion, sparked by the central bank's decision last month to lower reserve requirements.

As a reminder, in order to stem the plunge in the lira, on August 13 the Turkish central bank cut reserve requirements for banks by 4% points for foreign exchange liabilities over one, two and three years, and by 2.5% points over other maturities.

It refines scrap gold into jewelry sold all over the Middle East, and – when the Iran sanctions hit in earnest in November – Turkish gold will once again serve as a monetary lifeline to Tehran, as the untracable gold-petro-yuandollar loop is restored.

Ultimately, the question is whether the central bank can restore investor confidence – and just how long the emerging market crisis, and capital outflows, will continue.

Categories: ZH