C&B Notes

Bottom of the (Gold) Barrel

Venezuela’s ruinous economic policies have the Maduro administration selling the country’s gold to meet its cash needs as currency reserves dwindle.  Venezuela is on the verge of insolvency, and avoiding insolvency will ultimately require a major rally in oil prices and/or foreign aid.

In a sign of how Venezuela is growing increasingly desperate to acquire hard currency, a report released this week showed the country has been stepping up its sales of gold.  The value of the central bank’s bullion holdings fell 28 percent at the end of May from a year earlier, while the spot price for the metal declined just 12 percent.  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 amid a punishing recession, inflation exceeding 100 percent and a collapse in the price of its main export, oil.

With $3.5 billion of bond payments due this week and next, the cash-strapped country’s international reserves are hovering near a 12-year low of $15.2 billion, including gold holdings that totaled $11.8 billion at the end of May.  Notes from Venezuela, which relies on crude for 95 percent of export revenue, are trading at distressed levels with swaps contracts pricing in a 96 percent chance of default over the next five years.

The latest figures support estimates that Venezuela had about $42 billion of total assets — including off-budget funds — at the end of the third quarter, of which $15 billion was liquid, Barclays Plc economist Alejandro Arreaza said by phone from New York.  He said liquid assets will fall to about $8 billion by year end.  The country and its state oil company have $12 billion in bond payments coming due next year.