Hiding the gold from the US
Off the books.
Cash in hand.
Under the table.
Normally when you hear those phrases, you think of a tradie building something in return for a slab of beer.
Or a café paying a worker cash so they don’t have to pay the minimum hourly rate.
However, that also applies to a country.
Because it turns out, one of the world’s most oil-rich countries is selling its gold off the books…
Russia and Uganda work with Maduro
Venezuela is said to have the world’s largest confirmed oil reserves, with 300 billion barrels of oil.
And the country is falling apart.
More than two million people have fled Venezuela as the decisions of President Nicolas Maduro have eroded any value of wealth.
The inflation rate hit an all-time high of 833,997% in October. And the International Monetary Fund (IMF) said consumer inflation will reach 10 million per cent by the end of 2019.
Maduro has crippled his people financially.
More so, his decisions have earned the wrath of the US government, and Venezuela has been booted out of the international US dollar payments system.
Along with that, the US government is encouraging allies not to work with the crippled South American country.
Except, as it turns out, the Maduro government has found a way around this.
The government is using off-the-books methods to raise cash in order to stay in power.
There’s been rumours of selling gold to Turkey to keep Maduro’s mercenary staff employed.
Then just two weeks ago, The Wall Street Journal wrote that in March, there were two flights from Venezuela to Uganda carrying some 7.4 tonnes of gold, worth about US$300 million.
Flown there by Russian jets, no less.1
To boot, Reuters noted earlier in the year that some 300,000 people — desperate for food and basic necessities like toiletries — have turned into prospectors.
Venezuelans are rushing into the country’s gold regions and fossicking for the yellow metal. It turns out, people would rather labour for hours daily in the hope of finding gold than hold the worthless bolivar.2
Ready to default?
Not only is Venezuela selling its gold off the books, but it is losing its ‘official’ gold holdings too.
A few years ago, Venezuela stumped up an awful lot of gold to fund some loans from major global banks. The country took on a billion or so in US dollar loans, and backed them up with gold as collateral.
But as they risk defaulting on the loans, the investment banks are selling the Venezuelan gold.
As Jim explains here, investment banks around the world don’t want the gold. They’d rather get back the US dollars.
For now, Venezuela has managed to avoid creating an emerging markets debt crisis. But for how much longer?
Until next time,