Core Viewpoint - The recent narrowing of the price gap between domestic physical gold prices in Turkey and international market prices indicates a return to historical averages, alleviating some pressure on the Turkish lira [1] Group 1: Price Gap Analysis - The price gap between domestic physical gold priced in Turkish lira and the international market equivalent once exceeded 5% during the autumn but has now decreased to approximately 1.5%, close to the long-term average [1] - The narrowing of this price gap is attributed to a slowdown in local foreign exchange and gold retail demand, along with an increase in market supply [1] Group 2: Demand Factors - Factors contributing to the decline in local demand include a continuous decrease in the scale of the Turkish foreign exchange-protected deposit mechanism (KKM), a moderation in the upward momentum of international gold prices, and a gradual weakening of local investment demand since summer [1] - The KKM balance has dropped significantly from around $140 billion in August 2023 to approximately $6 billion currently [1] Group 3: Gold as an Asset - The Central Bank of Turkey estimates that the amount of gold stored at home by Turkish residents is close to $500 billion, highlighting the asset's popularity in a high-inflation environment [1]

Core Viewpoint - The Turkish foreign exchange-protected deposit mechanism (KKM) is set to be phased out, marking a shift towards more market-oriented macroeconomic policies while facing short-term risks to the lira and market uncertainty [1][2][3] Group 1: KKM Mechanism Overview - The KKM was established in response to the lira's significant depreciation in 2021, which saw a 44% decline against the dollar, and allowed individuals and businesses to deposit lira in special accounts with state compensation during currency depreciation [2] - Since its inception, the KKM has incurred costs of approximately $60 billion, stabilizing short-term capital outflows but increasing long-term fiscal pressure [2][3] Group 2: Policy Transition and Market Implications - The Turkish Central Bank announced that KKM accounts will no longer accept new accounts or renewals, indicating a move away from unconventional monetary policies [1][3] - The balance of protected deposits has decreased sharply from a peak of $140 billion to about $7 billion, reflecting a growing confidence in the lira and the new monetary policy framework [2][3] Group 3: Future Challenges and Investor Sentiment - The end of the KKM is expected to lead to increased exchange rate volatility and market fluctuations, with investors needing to manage currency risks in the short term [4][5] - The Turkish government aims to enhance policy credibility and attract capital inflows through tighter monetary policies and improved transparency, despite ongoing challenges such as high inflation and external economic pressures [4][5]