Demand for gold in Türkiye maintains an unprecedented pace as households continue to see the popular commodity as a hedge against inflation pressures.

The country’s central bank also remains one of the biggest buyers of the precious metal among central banks worldwide.

Bar and coin investment in Türkiye reached "phenomenal levels" in the first quarter, exceeding 50 tons for the first time on record, said the World Gold Council (WGC) on Friday.

Demand increased fivefold compared to a year ago and was 32% higher quarter-over-quarter, WGC said in a report. In value terms, it said an unprecedented TL 58 billion (around $3 billion) was invested in gold.

Turkish households have been seeing gold as a haven to shield themselves from inflation, which has eased over the last six months from a peak in October last year.

According to official data, annual inflation moderated further in April, falling to 43.68%. The reading marks a notable regress from 85.51% in October last year – a 24-year peak. It fell in December and touched 50.51% by March, with a favorable base effect and a relatively stable Turkish lira.

One-sixth of global demand

Worldwide, investors bought 302 tons of gold bars and coins in the January-March period, the WGC said, meaning Türkiye alone accounted for one-sixth of the global demand.

The overall figure jumped 14% above the five-year average and equaled $18.4 billion in value. The buying was spurred by strong gold prices, which reached record levels in some markets, the council noted.

Investment demand picked up in March as bank failures spread fear through markets and analysts anticipated the end of U.S. interest rate increases.

"Demand was further fueled by persistent high inflation, geopolitical risks and concern over contagion in the banking crisis," the WGC added.

Yet, it notified that demand failed to match the previous quarter's levels, as high gold prices encouraged profit-taking and sharp declines were seen in a few key markets.

Chinese were the biggest bar and coin investors in the first quarter, as demand reached 66 tons, marking a 34% jump year-over-year and a 7% rise quarter-over-quarter. It was mainly driven by China’s emergence from the COVID-19 pandemic and the gold price performance.

India also remained one of the biggest gold consumers, as record high – and volatile – local prices in the first three months were the key driver of demand, which was relatively muted at 34 tons, the WGC data showed.

Yet, the demand in the March quarter marked a 17% fall to the lowest level in 10 quarters and is likely to remain subdued even during June and September quarters on record-high prices, the WGC said.

The WGC said investment demand would likely grow this year and central bank buying would remain strong, albeit below last year's high.

However, stockpiling by investors is likely to make gold more expensive, which could reduce demand in countries like India where consumers are often put off by high prices, said WGC analyst Krishan Gopaul.

CBRT big buyer again

The Central Bank of the Republic of Türkiye (CBRT) was again a big buyer of gold among global monetary authorities in the January-March quarter, the data showed.

CBRT’s official reserves rose by 30 tons. Its combined purchases of 45 tons in January and February were offset by a sale in March – the first since November 2021, the WGC said.

Fifteen tons of gold were sold into the local market after Türkiye temporarily suspended some gold imports as part of an emergency plan to mitigate the economic fallout from the devastating earthquakes that struck the southeastern region in early February.

According to the data, the CBRT’s total gold reserves have jumped to 572 tons, accounting for 34% of total reserves.

Strongest quarter on record

The WGC said global central bank demand in January-March marked the strongest first quarter in data going back to 2000. Central banks bought 228 tons of gold, 34% higher than the previous first-quarter record, set in 2013.

The Monetary Authority of Singapore (MAS) was the largest single buyer during the quarter, with an addition of 69 tons, the first increase in its gold reserves since June 2021. Overall gold reserves at MAS total 222 tons, 45% higher than at the end of 2022.

The People’s Bank of China (PBoC) followed as it disclosed that its gold reserves had risen by 58 tons. Since resuming reports of purchases in November 2022, the PBoC has added 120 tons to its gold reserves, lifting them to 2,068 tons, accounting for 4% of total reported gold reserves.

Global demand falls

Meanwhile, the WGC reported that global gold demand fell in the first three months of 2023 as large purchases by central banks and Chinese consumers were offset by reduced investor buying.

The council said in its quarterly demand trends report that total demand amounted to 1,081 tons, down 13% from the first quarter of 2022.

Around half of the gold demand comes from jewelers, with investors and states responsible for most of the rest. Bullion is seen as a safe asset and investors often buy more during times of economic instability.

Demand shot to an 11-year high in 2022 thanks to the biggest central bank on record. Gold prices, meanwhile, are near record highs above $2,000 an ounce.

Spot gold fell 0.7% to $2,036.74 per ounce by 11:38 a.m. GMT on Friday, but was up 2.3% for the week.

Gold hit $2,072.19 on Thursday, just shy of a record high of $2,072.49, after the U.S. Federal Reserve (Fed) hinted that its marathon hiking cycle may be ending.