What’s behind El Salvador’s massive gold reserves sale?

What’s behind El Salvador’s massive gold reserves sale?

El Salvador's reserve bank sold 5.412 tonnes of gold for $206 million, depleting its gold reserves from its previous holdings of 6.8 tonnes.

Analysts are not sure what to make of El Salvador’s recent move that saw its central bank sell about 80% percent of its gold reserves in March, according to figures published by the International Monetary Fund (IMF).

The small Central American nation’s reserve bank sold 5.412 tonnes of gold for $206 million, depleting its gold reserves from its previous holdings of 6.8 tonnes, IMF data shows.

An official from the bank told Reuters last week the sale aimed to help diversify its risk and take advantage of appreciating gold prices. However, analysts such as those at Commerzbank, don’t seem to buy that explanation.

“The country’s official currency is the U.S. dollar, in which the gold price is a long way off its highs,” they said in a report Tuesday, quoted by Kitco.com.

Anti-mining

El Salvador has also made the headlines in past weeks because the impoverished nation may be forced to pay US$300 million in damages to Australian-Canadian miner OceanaGold (TSE, ASX:OGC).

The company is seeking compensation over the rejection of a mining license application back in 2013, on the basis of the projected environmental damage it would have caused according to local authorities.

The Melbourne-based firm referred the case to Washington-based International Centre for Settlement of Investment Disputes (ICSID), a World Bank’s body, claiming “lost of potential profits.”

The government of El Salvador, the most water-stressed nation in Central America, stopped granting mining licenses back in 2008, in an attempt to preserve its limited clean water supplies and safeguard the environment.

Image from Wikimedia Commons.