Liquidation time for Venezuela (and its gold)

Crisis-hit Venezuela has $3.5 billion in debt payments due within 10 days (and $12 billion in 2016) and really only its gold bullion reserves to pay for it

Venezuela's economy has been devastated by the drop in oil prices which came on the back of years of financial mismanagement by the socialist government of the Latin American nation.

It's crunch time for Venezuela with $3.5 billion in maturing debt and interest payments due this week and next and another $1.5 billion before the end of the year.

Venezuela's foreign exchange reserves are at a 12-year low as hard currency becomes scarcer, and shortages of basic goods and inflation in triple digits stir up anger inside the country.

Venezuela has the world's 16th largest hoard of gold. At 361 tonnes as of the start of October the bullion represents 67.3% of the country's reserves.

Bloomberg reports Venezuela has been selling these reserves at a steady clip with the latest available data up to May this year showing a 28% drop in the value of the country's forex reserves over the preceding year (taking into account a 12% drop in the dollar price of gold over the same period):

"The figures, while reflecting transactions that took place five months ago, underscore the efforts the government is taking to raise the cash to repay creditors and fund imports."

While reserves and other off-budget assets total $42 billion, only around a third of those are easily off-loadable according to analysis by investment bank Barclays. That means Venezuela could find itself down to its last $8 billion in liquid assets including gold by the end of the year.

The remaining gold holdings will look very tempting considering the country and its state oil company have another $12 billion in bond payments coming due next year according to Bloomberg.

The country has monetized its bullion in innovative ways before.

President Nicolas Maduro on behalf of the country's central bank signed a deal with US bank Citigroup to swap $1 billion in cash for about 1.4 million ounces at the end of April when gold was changing hands for $1,200 an ounce.

While details of the agreement were not disclosed a simple calculation shows Caracas may have received only around $800–$850 per ounce.

How much the remaining 12.7 million ounces will fetch is an open question. And after late president Hugo Chavez repatriated the country's gold holdings in 2011, who'd want to buy gold held in Caracas vaults is another.

Image by Quelverd Arias Camargo