Taper Trouble Hits Gold's Fourth Biggest Buyer

London (Jan 31)  A sharp recovery from Monday’s new all-time lows in the Turkish lira versus the dollar came before the Central Bank of the Republic of Turkey made the announcement that it was hiking interest rates from below 8% to a massive 12% on Tuesday night. The lira has given back half that rally since.

Lots of analysts have already linked gold’s 6% rally to emerging markets’ fallout from Fed tapering this month. So what might Turkey’s new “reassurance” do to precious metals demand amongst the world’s fourth heaviest buyers?

If the latter, those fears sadly now look all too well founded. Gold priced in Turkish lira has risen 11% so far in 2014 already. But simply buying gold to keep at home might do only half the job.

Capital controls are where government slams the door on outflows of cash, trying to protect the home currency by barring people from selling it for other currencies or assets, especially overseas.

Such controls still constrain people across emerging Asia. (You can’t move money out of India without approval from the Reserve Bank. Good luck with that!) All too often, controls on gold…the ultimate escape from currency collapse…also apply. (Again, see India for a live example.) And it was only three decades ago that such controls on rich-world households in Western Europe and North America began to be dismantled. The Banca d’Italia held a monopoly on trading investment gold bullion in Italy until 1999.

Owning physical bullion overseas, in advance of such trouble, offers a long-proven, deeply liquid escape. Most BullionVault users, almost 90% of whom live in the US, UK or Eurozone, choose Zurich for gold, but Singapore gold storage is increasingly popular too.

The 2014 risks to emerging-market gold demand could go either way. Higher interest rates and lower growth would dent jewelery buying. Further currency and stock market turmoil would likely increase wealthier middle-class bar and coin hoarding.

Ben Bernanke’s legacy of taper trouble, in short, could go either way for global gold and silver investment. That’s before the $2.5 trillion of frozen money now held in bonds by the Fed starts to mature and melt into all too-spendable, inflationary cash.