With $5 billion in debt payments due before the end of the year, Caracas could be close to dumping more than 3 million ounces of its bullion reserves on the market
Venezuela’s economy has been devastated by the drop in oil prices which came on the back of years of financial mismanagement by the quasi-socialist government of the Latin American nation.
The next two months is crunch time for Venezuela with more than $5 billion in maturing debt and interest payments due 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 stirs up anger inside the country.
While its reserves total $15.35bn, less than $500 million are “liquid reserves” says a new note by Barclays reported by the FT “with the remainder in gold and borrowings from the IMF. All of which means Venezuela could find itself in a $10bn hole this quarter.”
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.
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.
Barclays expects a “gold repo” deal to the tune of $3 billion before the end of the year. That’s 2.6 million ounces at today’s prices. Or 3.5 million ounces based on the April deal and given the limited wriggle room the country has to negotiate terms.
In November 2011, Venezuela repatriated some 180 tonnes of gold held in vaults in London and elsewhere to store it with the Caracas central bank under orders from late President Hugo Chavez in an effort to “end the dictatorship of the dollar.”
That was no mean feat considering the difficulty other nations, including Germany which has $54 billion worth of bullion stored in Manhattan, has had to get back their bullion.
Today almost all of the 361 tonnes are located in vaults in Caracas. But that’s were the problem lies.
Aberdeen Asset Management Plc’s Edwin Gutierrez, who helps oversee $13 billion as the head of emerging-market sovereign debt, summed it up neatly to Bloomberg:
“No bank is going to take collateral for gold that’s actually held in Caracas.”
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