• "Spreading the ideas of freedom loving people on matters regarding metals, finance, politics, government and many other topics"

Venezuela is shipping gold to pay debt

Scorpio

Hunter of Chin Li's Boo Hoo Flu
Founding Member
Board Elder
Site Mgr
Midas Supporter ++
Joined
Mar 25, 2010
Messages
32,742
Likes
47,724
#1
Venezuela is shipping gold to pay debt
by Patrick Gillespie @CNNMoney February 25, 2016: 1:27 PM ET

Major oil producer in turmoil

Venezuela is shipping gold to Europe so that it can pay its debt.

Venezuela sent $1.3 billion worth of gold bars to Switzerland in mid-January, according to data from the Swiss Federal Customs Administration.

That gold was shipped out just weeks before two big debt payments due this month, totaling $2.3 billion. On Friday alone, Venezuela has to pay bondholders $1.5 billion.

Venezuela is running out of cash and many experts believe there's a high chance it will default by this fall when a string of big debt payments are due.

"It's a question of when Venezuela will default, not if," says Russ Dallen, managing partner at LatInvest, a firm that invests in Latin America. "They're running out of options."


That's why the country is using its dwindling gold reserves to make debt payments. But experts say it has to ship the gold all the way to Switzerland for two likely reasons:

1. Switzerland is one of the largest hubs for gold in transit and has the most trusted stamp of purity. So once Switzerland verifies the quality of the gold, Venezuela can then sell it for cash.

2. Venezuela can also put up its gold as collateral in exchange for a cash loan from banks in what is known as a "gold swap."

Some believe the second option is the more likely reason behind the shipment.

Reuters reported earlier in February that Deutsche Bank and Venezuela were negotiating a gold swap. Deutsche Bank declined to comment and Venezuela's central bank did not respond to a request for comment.

This shipment is pretty unusual. Gold is traded a lot, but countries usually keep their gold for safekeeping in places like the Federal Reserve Bank's vault in New York. When they trade gold, it usually goes from one vault to another.

But Venezuela's late president, Hugo Chavez, brought the country's gold bars back to his country in 2011 and 2012, in a show of patriotism.

In the face of major debt payments and economic crisis, now Venezuela is sending its gold back to Europe.

This week, Venezuela revealed that it's total reserves in November had fallen to $14.5 billion, the lowest level since 2003. Of that total sum, $10.9 billion is in gold. It has other reserves at the International Monetary Fund and in other precious items, like diamonds and silver.



Experts believe Venezuela has less than $1 billion in cash reserves.

"There are not enough dollars to pay their external debts," says Mauro Roca, an economist at Goldman Sachs. "The economic environment is one of the worst in the world. It's clearly unsustainable."

Any way you look at it, Venezuela is in a severe economic recession. Inflation is skyrocketing -- the IMF estimates it will rise 720% this year. Its economy tanked last year, shrinking 10%. The value of its currency, the bolivar, has plummeted.

Default could soon be knocking on Venezuela's doorstep. In November and October, Venezuela must pay almost $5 billion in debt. Barring lots of help from China -- one of Venezuela's popular sources of finance -- experts believe Venezuela probably will default.

CNNMoney (New York) First published February 25, 2016: 12:24 PM ET

http://money.cnn.com/2016/02/25/news/economy/venezuela-gold-debt/?hl=1&noRedirect=1
 

the_shootist

Old Pasty White Guy
Midas Member
Midas Supporter ++
Joined
May 31, 2015
Messages
52,506
Likes
95,112
Location
Earth
#2
Why don't they just print some? It worked out well for a long time with the Fed
 

gringott

"Veteran of the Battle of Knob Creek"
Midas Member
Site Supporter ++
Joined
Apr 2, 2010
Messages
16,695
Likes
24,448
Location
Stable
#3
And POOF! It's gone.
 

Uglytruth

Midas Member
Midas Member
Site Supporter ++
Joined
Apr 6, 2011
Messages
12,270
Likes
24,797
#4
They should have sent paper gold. Easier to ship with just the touch of a button.
 

Irons

Deep Sixed
Sr Site Supporter
Mother Lode
GIM Hall Of Fame
Joined
Mar 30, 2010
Messages
31,271
Likes
61,448
#5
"There are not enough dollars to pay their external debts," says Mauro Roca, an economist at Goldman Sachs.

I'm sure he had a tiny little banker boner when he typed that.
 

Goldhedge

Moderator
Site Mgr
Sr Site Supporter
GIM Hall Of Fame
Joined
Mar 28, 2010
Messages
54,528
Likes
105,278
Location
Rocky Mountains
#6
When they go into default... the IMF merely needs to send in an economic hit man to lend them a billion dollars...just pay us the interest.


Which is how they got into this mess in the first place.
 

FunnyMoney

Silver Member
Silver Miner
Joined
Apr 1, 2010
Messages
3,346
Likes
3,123
#7
They will run out of gold prior to running out of debt.
 

Usury

Site Supporter
Site Supporter
Platinum Bling
Joined
Apr 1, 2010
Messages
4,817
Likes
4,407
#9
Why don't they just print some? It worked out well for a long time with the Fed
I get the impression these are US Dollar-denominated debts.
 

Scorpio

Hunter of Chin Li's Boo Hoo Flu
Founding Member
Board Elder
Site Mgr
Midas Supporter ++
Joined
Mar 25, 2010
Messages
32,742
Likes
47,724
#10
that is the beauty of pricing oil in dollars,

it becomes the world standard, then the debts also tie back to the buck