Cash-Strapped Venezuela May Sell Gold Reserves, Citigroup Says

Updated on

Countries facing cash shortages may be tempted to sell part of their gold reserves to raise funds, according to Citigroup Inc., which cited Venezuela as a potential example amid concern it may default.

The South American nation is one country that may be at risk of selling part of its holdings after oil fell and commodity prices weakened, analysts including David B. Wilson and Aakash Doshi, wrote in a report. Calls by Bloomberg to Venezuela’s central bank and the media office at the finance ministry outside normal office hours weren’t answered.

Gold retreated to a five-year low in July as the dollar rallied on prospects of higher U.S. interest rates. Sales of bullion by governments may add to pressure for weaker prices even as other central banks, including China’s, expand holdings. Should Venezuela sell part of its gold, prices could see lows maintained, according to Wilson and Doshi.

“I don’t think many central banks will be that tempted,” said Aberdeen Asset Management Plc’s Edwin Gutierrez, who helps oversee $13 billion as the head of emerging-market sovereign debt. “Someone as desperate as Venezuela, absolutely, because they don’t have recourse to many other options.”

Venezuela gets more than 95 percent of its export revenue from oil, and the slump in crude prices has stoked concern that the nation may face difficulties paying debt. Still, there’s a low probability of default this year, according to Barclays Plc.

Bank Holdings

Venezuela had 11.607 million ounces of gold as of September, according to data from the International Monetary Fund. About 68 percent of the country’s reserves are in bullion as of August, according to the Citigroup report.

“Cash-strapped nations could trigger further downside price risk as the temptation to sell gold reserves mounts,” the Citigroup analysts said in the Aug. 18 report. “Venezuela is one such country at risk.”

Gold for immediate delivery traded at $1,128.16 an ounce by 4:13 p.m. in London, 4.7 percent lower this year, according to Bloomberg generic pricing. Citigroup maintained its forecasts in the report, predicting prices to average $1,090 this quarter as the Federal Reserve would probably start to tighten.

Venezuela “appears poised for a near-term crisis” amid protests and shortages of basic goods as the country heads for parliamentary elections in December, according to RBC Capital Markets Ltd. The cost of insuring the government’s five-year bonds has rebounded to near a 12-year high.

In 2011 and 2012, Venezuela’s government repatriated most of bullion that it had held in overseas banks. The move was ordered by then-President Hugo Chavez as a safeguard against instability in financial markets.

“The problem is most of the Venezuelan gold is located in Caracas,” Aberdeen’s Gutierrez said by phone from London on Tuesday. “No bank is going to take collateral for gold that’s actually held in Caracas.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE