The latest data show Venezuela had roughly $10.5 billion in reserves at the end of 2016 — most of it gold — with which it must meet this year’s debt obligations.
As Venezuela’s socialist economy suffocates under the weight of debt obligations, it is saddled with OPEC’s agreement to curb oil production — Venezuela’s major source of revenue. Analysts monitoring its montly debt and amortization payments note that April is a big month, with more than $2 billion due. Russia and China have helped shore up the nation’s balance sheet, with promises of future energy shipments and the use of U.S. Citgo refineries as part collateral, and for now no one is predicting default.
But the just-released data for the end of 2016 show Venezuela is struggling, with $7.7 billion in gold based on a 9-month trailing price of $1,272.42 per ounce, according to Caracas Capital. That’s down from $10 billion in gold reserves reported at the end of 2015 at a lower gold price, according to Russ Dallen at Caracas Capital. He adds that the gold figure is nearly half of the reported $14.6 billion in gold Venezuela reported at the start of 2015, and he thinks the government sold more than $2.3 billion in gold, as reported, to authorities in Switzerland last year.
The government of Venezuela and state-controlled oil company Petroleos de Venezuela together face $10 billion in debt payments this year, though April deadlines could prove especially onerous and February’s burden is sizable.
The government is on the hook this year for $3.4 billion and Pdvsa, $6.6 billion — with $2.9 billion due mostly by Pdvsa in April, according to Caracas Capital. It puts the total debt burden of Venezuela, an oil producer and OPEC member, at $71 billion, not including a number of special arrangements including loans from China to be paid back with oil shipments.
The potential pressure on gold prices is reflected in what Venezuela has been doing. Oil is the country’s main export, and the United States imports some of it. (See our post on President Donald J. Trump plans to construct controversial energy pipelines.) Caracas Capital emailed us Dennis Gartman’s subscription newsletter published Friday with comments on Venezuela’s sale of gold as it struggles to produce oil revenue and make bond payments. Here’s the Gartman excerpt:
” … courtesy of our friend Mr. Russ Dallen of Caracas Capital … Venezuela sold $2.85 billion of gold last year, all of which was in the first 6 months of the year. According to the Venezuela Central Bank as of the end of November, Venezuela had $7.7 billion in gold remaining. Last year’s gold sales were not Venezuela’s first for we note that the Reserve Bank sold $4.58 billion worth of gold in 2015. It will sell more this year; it has no choice. Gold may be its only source of liquidity. Further, regarding gold, another friend in the industry, Mr. John Brimelow, informs us that the open interest in gold on the COMEX fell 4.3% Wednesday. This is not an unprecedented decline in the open interest, but certainly it is more than merely noteworthy. Finally, we remain of the mindset that the only rational way to be long of gold is via euros (EURs) and or via Yen, for the dollar remains strong and we ask again, “Why would one use rising dollars to buy gold when one can use falling EURS and Yen to do the same job? … ”