Venezuela is losing all its gold. Where is it going?

Venezuela is losing all its gold. Where is it going?

The political and social situations in Venezuela are well-known.

Venezuela is worse than a failed state.

It is a humanitarian crisis of the utmost gravity.

Its currency and economy have collapsed.

Its role as a major oil exporter has been greatly diminished by economic sanctions.

Venezuela’s illegitimate president, Nicolás Maduro, is holed up in the presidential palace behind a Praetorian Guard of Cuban mercenaries and Russian advisers.

The legitimate government is in the streets, leading mass protests.

People are starving to the point that rare jungle mammals face extinction because they are being hunted for food.

Investment banks cash in the gold

Venezuela has only one valuable asset left that can be exchanged for cash to pay the troops and mercenaries — gold.

Much of Venezuela’s gold has already been swapped or sold for cash.

What’s left is being smuggled out of the country for sale to African refineries, where tracing the gold is next to impossible.

Other gold is being foreclosed by banks that held it as collateral for loans now in default.

Reuters recently reported the fate of US$1.4 billion of Venezuelan gold (about 28 metric tonnes) pledged to Citibank and Deutsche Bank to secure certain loan and derivatives agreements.

Citibank and Deutsche Bank have taken control of around $1.4 billion of Venezuelan government gold, which they received as guarantees for loans, as a result of U.S. sanctions on the Venezuelan Central Bank, according to five sources.

Between 2014 and 2016 the central bank (BCV) used a portion of its foreign gold reserves to guarantee financial operations with banks to boost liquidity, with the intention of repaying the loans to avoid losing the gold.

Five sources with knowledge of the deals said the BCV had agreed with Citibank and Deutsche Bank to buy back the gold in 2020 and 2021, but since the U.S. government imposed sanctions on the BCV in April the banks had invoked a condition of the contracts to retain ownership of the bars.3

These banks have little interest in holding that much gold, so they will auction it in the market and use the proceeds to pay off the agreements in default.

Any excess cash may be deposited for the benefit of the Venezuelan government-in-waiting after Maduro leaves.

These gold seizures raise the question of where the gold ends up.
Quantities of five tonnes or more are huge, even by the standards of the global gold market.

The most likely buyers will be the large central banks that are still acquiring gold, including Russia and China.

Other possible recipients are Turkey and possibly Iran through illegal channels.

One of the salient characteristics of gold for the past 5,000 years is that it never goes away; it just changes hands.

All the best,

Jim Rickards Signature

Jim Rickards,
Strategist, The Daily Reckoning Australia

3 https://www.reuters.com/article/us-venezuela-gold/venezuela-loses-14-billion-of-gold-to-banks-for-guarantees-sources-idUSKCN1T72LU