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Venezuela has sold $570 million worth of gold in the past two weeks. It reports that Bloomberg based on various sources within the government. The central bank is said to have sold a cargo of 9.7 tonnes of gold on May 10, only to sell another 4 tonnes three days later. With the sale of the precious metal, the central bank's reserves fell to $7.9 billion, the lowest level in 29 years.
Since the beginning of April, the central bank has already sold 23 tonnes of gold at the behest of the government. The country has virtually no foreign exchange reserves left, so it has to Selling gold to be able to import goods. Due to the US sanctions, Venezuela is cut off from international payments, but apparently the Maduro government still manages to free up money by selling gold.
Venezuela's reserves to lowest level in 29 years (Source: Bloomberg)
Maduro still enjoys support from a large part of the population, but the economic situation seems unsustainable in the longer term. Money has become worthless due to hyperinflation, while the bottom of the central bank's reserves is in sight. With the sale of the gold stock, the government can buy some time, but even that is only temporary. In the long term, Venezuela must derive its income from the export of oil and gold, both of which are subject to sanctions.
Venezuela sold bullion through the United Arab Emirates and Turkey, in violation of U.S. sanctions. It is not clear who the buyer of the precious metal is. Since the outbreak of the crisis, the country has already sold more than half of its gold reserves. Part of the gold stock is held by the Bank of England in London. Maduro's government tried to retrieve the $1.2 billion worth of precious metal from London. However, that request was Rejected by the Bank of England.
The government in Venezuela is under pressure from economic sanctions imposed by the United States. The sanctions have reduced the export of oil, the country's main source of income. Several bank balances in foreign accounts have also been seized, making it impossible for the government to use them. The United States is stepping up pressure to overthrow President Maduro's government, including by supporting opposition figure Guaido.
Regardless of the political situation, we can conclude that gold has certain advantages over currency reserves. For example, the precious metal has no counterparty risk, because there are always ways to market it. Precisely because of the lack of counterparty risk, many central banks choose to hold gold reserves. Several countries have added precious metals to their reserves in recent years addedas a hedge against economic and political risks.
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