Venezuela Gold Sale: Desperate or Shrewd?

October 26, 2012 at 08:45


Hugo Chavez caused something of a flutter last year when he announced flamboyantly that he was going to repatriate almost all of the 211 tonnes of gold bullion that Venezuela owned abroad.

It was one of the largest transfers of physical gold in recent history, purportedly to “protect” Venezuela’s reserves from hostile “imperialist” regimes – but it turns out that the central bank has been selling its gold anyway.

According to the latest IMF data, Venezuela sold 3.7 tonnes in August alone, bringing total sales so far this year to about 10.9 tonnes. Venezuela now has 362 tonnes of gold reserves, compared to 372.9 tonnes at the beginning of this year.

Venezuela is not alone in selling off its gold, with Russia, Belarus, Kazhakstan and the Czech Republic all doing so in September, according to the IMF, although Brazil and Ukraine have been net buyers.

Central bank gold buying has helped to boost gold prices, which hit record highs a year ago, and are still above $1,700 an ounce – more than double the price five years ago.

But in Venezuela at least, analysts expect the government to continue selling its gold. Why?

With almost three quarters of Venezuela’s $25bn in foreign exchange reserves held in gold, and liquid reserves of only about $2bn, local economists suspect that the gold sales may be because the government needs more hard currency so that the import-dependent country can remain well-stocked with the many things it doesn’t produce – including a broad range of foodstuffs.

True, the value of the gold sold is relatively small change compared to Venezuela’s huge oil revenues – but then again, when you spend as much as Chávez does, every bit counts. Nevertheless, the president of congress’s finance commission has said that the gold sales were made simply to take advantage of high gold prices.

That may be partly true, but it is also the case that liquid reserves have fallen dramatically since 2008, by about $25bn – roughly the total level of Venezuela’s reserves today, which recently hit their lowest level in the last five years. So much for Chávez’s plan to “protect” the country’s reserves.