Istanbul, Turkey: From the outside, it looks like any other automatic bank machine on the streets of Istanbul. But rather than notes, this one distributes small pieces of gold.

Gold is hugely prized in Turkey not just for ornamentation or investment by banks but as a secure way for private individuals to hold their savings.

Many people in Turkey—which has one of the lowest private savings rates among major economies—keep gold as security for a “rainy day” rather than products offered by banks.

According to estimates, Turks hold some 3,500 tonnes of gold. Banks have sought to capitalise on the tradition by offering accounts denominated in gold.

“We were thinking about putting all that gold back into the financial system somehow, so we decided to create gold accounts for our clients,” said Seda Yilmaz, marketing manager of the Kuveyt Turk Bank, the first to do so, in 2007.

“So we bought one kilo of gold, and the demand on the first day was three kilos. It was a very good decision, so we decided to move ahead.”

Eight years on, Kuveyt Turk manages 200,000 gold accounts with different products allowing sales by cheque, bank transfer or mobile phone.

Now with the introduction of the first ATMs that issue gold as well as the usual banknotes, consumers can withdraw pieces of gold weighing 1.0 or 1.5 grammes.

The success of the ATMs started a trend, with many other Turkish banks latching on. The volume of gold in their reserves has gone from two tonnes in 2007 to 250 tonnes.

The government has also tried to join the bandwagon with the central bank allowing commercial businesses to hold some of their reserves in gold and opening this up to private investors.

“Thanks to this measure, our sales jumped 85 percent last year,” said Aysen Esen, head of a leading gold refinery in the country.

“Over the last two years, banks have taken in some 40 tonnes of gold that people had stashed under their beds. And it’s just a small proportion of the reserves.”

‘Huge opportunity’

Turkey, where the mythical Phrygian King Midas turned everything to gold and Trojan King Priam was said to amass his gold hoard, has historically been a centre for gold mining.

The first gold was mined in Anatolia several millennia before the birth of Christ but until recent years there had been a long break in extraction.

This changed in the 1980s with new legislation facilitating foreign investments, resulting in the discovery of new gold deposits at home.

The extraction of gold has since risen exponentially, from two tonnes mined in 2002 to 33.5 tonnes in 2013. A bright future is assured, with underground reserves estimated at 6,500 tonnes.

“The main reason for this boom is that we still don’t have any tax on gross gold transactions, we only pay VAT (value added tax) on finished products,” said Ali Bulut chief executive of Turkey’s number one gold retailer Altinbas.

“I’m very optimistic in the long run about domestic demand, not only for fashion and jewellery but also for savings.”

Even if exchange rate variations have an effect on activity and profits, Turks are the number four global consumers of gold and number two exporters.

“In 2013, recycling, fabrication and consumption (of gold) boosted the Turkish economy by at least $3.8 billion,” said Alistair Hewitt, author of a recent report published by the World Gold Council.

“The opportunity is huge. We are only at the early stages here, there is a huge potential.

“It’s looking very, very exciting... all that infrastructure allows Turkey to become a gold trading hub within the region.”

Made a little jealous by the successes of banks in a market that they once had to themselves, Turkish gold jewellers staked their interest in joining the gold investment industry.

“We are a little bit disappointed. We may need new legislation and have this gold end up with the jewellers instead of the banks,” said Sarp Tarhanci of the Istanbul Chamber of Jewellery.

“Jewellers are customer-based, they build trust and good relationships with their clients.”

Turkey’s performance in 2014 remained strong, according to the latest figures published by the World Gold Council, even if purchases were down on the extremely strong 2013.

2014 demand for gold jewellery of 68.2 tonnes in Turkey was down 7 percent, “slightly more resilient” than the overall global trend of minus 10 percent.

Meanwhile, investment demand of 54.8 tonnes was 46 percent below the previous year’s 102.1 tonnes record.