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Gold Slumps on Turkish Tumult As Erdogan Axes Central Bank Chief

Gold futures are slumping to kick off the trading week as investors seek shelter amid Turkey’s tumultuous political developments. Turkish stocks and the lira are in freefall on Monday after President Recep Tayyip Erdogan terminated his central bank chief only four months into his four-year term. Gold markets are also waiting for Federal Reserve Chair Jerome Powell‘s speech on Monday, with markets paying attention to any details regarding policy.

April gold futures tumbled $8.50, or 0.49%, to $1,733.20 per ounce at 12:23 GMT on Monday on the COMEX division of the New York Mercantile Exchange. The yellow metal is coming off a 1% weekly gain, but it remains down 9% year-to-date.

Silver, the sister commodity to gold, declined below $26 again. May silver futures erased $0.636, or 2.42%, to $25.685 an ounce. The white metal also gained about 1% last week, paring its 2021 loss to around 3%.

One day after the central bank raised its benchmark one-week repo rate by 200 basis points to 19%, President Erdogan terminated Governor Naci Agbal, despite being given the position in November. But was it an inevitability at this point?

Despite Agbal creating confidence in the broader financial markets with his monetary policy tightening, Erdogan has maintained a different position on the economy. Rather than raising interest rates to fight inflation, the president supports rate cuts to spur economic growth. Evidently, Agbal suggesting that additional tightening measures were on the table if inflation did not ease and prices did not stabilize was the final straw for Erdogan.

Are rate cuts back on the table?

Although Finance Ministery Lutfi Elvan tried to reassure investors that Ankara is sticking with its free-market reforms and a liberal foreign exchange rate, there was a tremendous selloff in stocks and the lira, with the currency crashing nearly 11% against the US dollar.

The Turkish tumult has caught the attention of global markets on Monday, particularly for metal markets. Since it is likely that the currency plunge will be extended, financial analysts do not think Turkish citizens will be buying more gold and could perhaps flee to conventional safe-haven assets.

Commerzbank analyst Eugen Weinberg said in a research note:

We are seeing somewhat a stronger dollar after the situation in Turkey, which is also a major buyer of gold. Some might suggest that Turkish citizens, given the fact their currency is plummeting, will not be buying as much gold going forward.

The US Dollar Index (DXY), which measures the greenback against a basket of currencies, edged higher in overnight trading. However, the index has slipped 0.1% to 91.80, from an opening of 91.92. A lower buck is typically good for dollar-pegged commodities because it makes it cheaper for foreign investors to purchase.

Treasurys slid to start the trading week, with the benchmark 10-year bond down 0.036% to 1.696%. The one-year bill was flat at 0.061%, while the 30-year bond fell 0.042% to 2.409%.

In other metal markets, April copper futures rose $0.0175, or 0.43%, to $4.131 per pound. April platinum futures shed $27.10, or 2.26%, to $1,173.00 an ounce. April palladium futures dropped $13.40, or 0.51%, to $2,617.50 per ounce.

If you have any questions and comments on commodities today, use the form below to reply.


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Published under: Gold

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