Turks Go for Gold, Mistrust Paper Stocks : Precious metals: The government is urging investment in certificates, but people have yet to take a shine to them.

Turkish hoarders, mistrustful of paper securities, have turned their country into a pot of hidden gold.

Economists say there’s enough of the precious metal socked away to pay off the country’s entire $36-billion foreign debt.

“Turkey’s gold stock is huge . . . all physical. Now it must be as much as 3,500 metric tons,” Istanbul-based economist Ersin Pertan said.

“The 3,500 tons is the conservative figure,” he added.

Government officials are trying to persuade reluctant Turks to put their trust in gold certificates and futures--what one dealer dismissed as “pieces of paper.”

It will not be an easy task. Since Ottoman times, Turks from all classes have taken refuge in gold, storing it in hiding places or wearing it as jewelry.

“Our people have no faith in paper,” said Muharrem Ozuslu, head of the Jewelers Assn.

Away from the busy traffic around Taksim Square in the labyrinthine alleys of the Covered Bazaar, treasures recalling the tales of Ali Baba glitter in shop windows.

“Gold is always the favorite,” gold dealer Oguz Peker explained as he handled several transactions. Across his counter, a peasant woman was buying a 22-carat gold chain as thick as a baby snake.

Another gold trader in a small booth under the medieval cupolas cut gold strips and stashed them in a tobacco tin. “People are buying crazily,” he said with a smile.

The central bank-brokered gold market, established in April, has sold more than 80 tons of gold since it opened. But only 22 pounds of that has been resold to the market. The rest is believed to be nestled beneath lace pillows or in hope chests and mattresses.

Dealers say jewelers buy the bulk of the central bank’s gold at world market rates. Gold is currently trading in New York at just over $400 an ounce, but formerly the jewelers paid smugglers much higher prices.

Bankers say the central bank has succeeded in cutting down the smuggling, which had run at about 70 million tons a year.

But government officials say the crackdown on smuggling is only the first step. They aspire to establishing a gold market, where futures and gold certificates can be traded, and a spot market, which could eventually make Turkey a Middle East center for worldwide gold trading.

“Investment in physical gold is a dead one. You should hold certificates, futures contracts instead,” said an official who asked not to be identified.

But dealers are doubtful. They say it will take at least another generation before trading in paper gold can dull the shine of the real thing, collected by Turks for centuries and set aside as “shroud money.”