LONDON – Turkey’s central bank is hoarding gold again. The question is, how much and why?

Official data show Turkey added 3.8-million ounces of gold worth almost $5-billion to reserves this year. While actual purchases could be much less – the figure is skewed by metal deposited by commercial banks – even if Turkey bought just one-third of the reported amount, it would still rank among the top two or three buyers this year.

While the central bank cited a good old-fashioned diversification policy, some analysts speculated that the country could be shoring up reserves amid rising tensions between Turkey and its traditional Western allies.

“There could be any number of reasons why they’re doing this, we just don’t know,” Robin Bhar, a London-based analyst at Societe Generale SA, said by phone. “One of the popular views is that they are fearful that their neighbours will antagonize them further, and that this will help them weather that storm.”

While Turkey has boosted reserves before – holdings more than quadrupled in the three years though late 2014 – the recent increase comes amid deteriorating relations between the country and nations such as Germany and the US. The central bank also started its latest buying spree as President Recep Tayyip Erdogan called for Turks to use gold instead of dollars to help stem a drop in the lira.

Changes in official reserves are part of a strategy of diversification, the central bank said by text message, without elaborating.

DIVERSIFYING RESERVES
“They like to have gold as a portion of their foreign reserves,” Cagdas Kucukemiroglu, a consultant for London-based Metals Focus, said by phone from Istanbul. “The president has always been pro-gold and is against the dollar, and that’s informing the central bank’s decision as well.”

The government this year launched a campaign to get more so-called “under-the-pillow gold” holdings into the formal banking system. Turkey’s Treasury said it collected 2.47 metric tons of gold last month through sales of 728-day gold-based bonds.

Turkey’s gold holding is the 11th-biggest by country, according to the International Monetary Fund. Because that includes metal accepted in reserve requirements from commercial lenders, a more realistic estimate of the central bank’s purchases this year would be nearer to one-million ounces, Macquarie Group analyst Matthew Turner said.

The only other major buyers this year are Russia, which boosted reserves by 5.3-million ounces, and Kazakhstan, which added one-million ounces, IMF data show.