Venezuela Opens Gold Vault for BofA Analyst to Count Bars

Francisco Rodriguez, an economist with Bank of America Corp., was at a routine meeting with Venezuelan central bank officials last week when he sprung an unusual question on them: Can you show me your gold?

He’d been itching to take a peek for years and now was the time to ask. With the government’s bonds sinking toward prices that indicate investors are bracing for the possibility of default, the country’s $15 billion of gold bars are crucial to ensuring debt payments are met. His first impression once inside the vaults? Those bars don’t take up a lot of room.

“You picture that amount of money requiring a lot of space when, in reality, it all fits in five small cells that were not even full to the top,” Rodriguez, a Venezuela native who covers Andean economies for Bank of America Corp. in New York, said in a telephone interview yesterday. He said he started counting frantically in his head, summing up figures scrawled out on signs near each pile of the metal. By his quick math, the gold was all there.

Rodriguez said that while he’s remained optimistic about Venezuela’s ability to keep servicing its debts, he’s been getting nervous phone calls from investors amid the rout that sent the country’s benchmark bonds to as low as 67 cents on the dollar last week. One client was even worried that the gold might have vanished from the vaults, a concern that Rodriguez said helped push him to ask to see the stockpile last week.

‘Last Dollar’

Gold accounts for about 71 percent of Venezuela’s $21.4 billion of foreign reserves, according to the World Gold Council. About $13 billion of the gold is held at the central bank in downtown Caracas, with another $2 billion at the Bank of England, according to Rodriguez. Those gold assets have grown in importance as Venezuela’s overall foreign reserves plunged 34 percent in the past five years, the result largely of a drain of its more liquid assets.

That reserve depletion has contributed to the selloff in Venezuelan bonds in recent months. As the rout deepened earlier this month, President Nicolas Maduro sought to reassure creditors, saying Sept. 10 that the government will pay back its debt “down to the last dollar.”

Investors still aren’t convinced. The cost to insure Venezuela’s bonds against default for five years with credit default swaps is the highest in the world -- an annual rate of 15.1 percent. Standard & Poor’s cut the rating on Venezuela’s debt on Sept. 16 to CCC+, a level that indicates a 50 percent chance of non-payment within two years.

Underground Vault

Rodriguez got his glimpse at the gold on Sept. 17, when he said he and four other people who attended the meetings at the central bank were led by an official in a white lab coat to a set of elevators with reinforced doors. Once it opened, some two or three floors underground, the vault was open for inspection under the watchful eye of security guards.

Inside were about five compartments, similar to jail cells but smaller, where different types of gold bars were stacked, Rodriguez said. Signs indicated how much gold was stored in each cell in ounces.

The central bank didn’t reply to an e-mail seeking comment on the meeting. In a Sept. 23 note to clients, Rodriguez said the “rare” look at the gold was “largely symbolic yet reassuring.”

“It’s not that the majority of the people doubt that the gold is there,” he said by phone. “But it’s one of these things that linger, something that’s nagging you and makes you wonder: What if it’s not?”

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