Gold’s Central Bank Paradox: Turkish Sales and Chinese Buying Create a Fractured Market

Turkey's 127-tonne gold liquidation and Fed policy uncertainty cap gold's rally, even as Brent surges to $108 and inflation fears mount.

The Strait of Hormuz remains effectively sealed, Brent crude has surged toward $108 a barrel, and inflation fears are resurging. For gold, this should be a textbook bullish scenario. Yet the precious metal is trading around $4,722 an ounce, roughly 10% below its levels before hostilities in the region escalated. A curious disconnect has taken hold, one that pits geopolitical risk against a powerful new headwind: central bank selling.

The Turkish Liquidation

The most dramatic shift in the gold market’s supply-demand dynamics comes from Ankara. Turkey’s central bank has offloaded or lent out approximately 127 tonnes of gold in recent weeks. The bulk of these transactions involve using bullion as collateral for currency swaps, a desperate bid to secure dollar liquidity as the lira buckles under surging energy import costs linked to the Iran conflict.

The impact on Turkey’s balance sheet has been stark. The value of the nation’s gold reserves has collapsed by nearly a quarter month-on-month, falling to $101.5 billion. Russia has also been a seller, though Moscow’s motives differ: it is cashing in on elevated gold prices to help plug budget holes rather than to stabilize its currency.

Asian Demand Offsets the Pressure

The selling has not triggered a full-blown rout, largely because Asian central banks are still buying. The People’s Bank of China recently reported its 17th consecutive monthly purchase, pushing its reserves above 2,300 tonnes. Malaysia and South Korea, long dormant in the gold market, have also resumed accumulation. Global central bank buying in January, however, totaled just five tonnes — a far cry from the monthly average of 27 tonnes seen last year.

The Fed Takes Center Stage

This week, the narrative shifts decisively toward monetary policy. The Federal Reserve convenes on April 28-29, and while no rate change is expected, the stagflation dilemma is forcing policymakers into a precarious balancing act. Gold has become acutely sensitive to interest rate expectations, and the accompanying statements from the Fed are likely to move the metal more than the physical sales out of Turkey.

Adding to the uncertainty, the confirmation hearing for Kevin Warsh as the new Fed chair looms. First-quarter US GDP data and fresh jobless claims figures will keep volatility elevated through the week. The European Central Bank also meets, further concentrating global attention on central bank messaging.

Wall Street’s Divergent Views

The shifting supply backdrop has prompted a split among major investment banks. Morgan Stanley has slashed its second-half price target to $5,200 an ounce. Goldman Sachs, by contrast, maintains its year-end forecast of $5,400, betting that the structural drivers for gold remain intact despite the near-term selling pressure.

For now, the market is caught between two forces: a physical overhang from state sellers and a monetary policy environment that could either reignite the rally or deepen the correction. The next few days will likely determine which side wins.