Tag Archives: Venezuela

Venezuela Exported Another 12t Of its Official Gold Reserves To Switzerland In February

According to data released by the Swiss customs department on Tuesday, Venezuela has net exported 12 tonnes of gold to Switzerland in February 2016. In January Venezuela net exported 36 tonnes of gold to Switzerland, in total 48 tonnes was moved in the first two months of this year. 

On 16 March 2016 BullionStar researcher Ronan Manly reported “Venezuela exported 12.5 tonnes of gold to Switzerland on 8 March 2016, via Paris”, based on an article by newspaper El Cooperante. Establishing, Venezuela has net exported at least 60 tonnes of gold year to date. 

Venezuela’s economy is in a tight spot. The country suffers from triple-digit inflation and Credit Default Swap (CDS) data shows that traders see a 78 % chance on default. The foreign exchange reserves of Venezuela declined by 12 % to $13.6 billion US dollars in February, from $15.5 billion US dollars in January of 2016. In an effort to avoid catastrophes Venezuela’s central bank has a strong motive to employ its official gold reserves. 

The gold imported by Switzerland must have been supplied from the official gold reserves of Venezuela’s central bank – Banco Central de Venezuela (BCV) – either as sales or swaps. Documents by the US Geological Survey show Venezuela’s annual gold production stands at approximately 12 tonnes, which is insufficient to be responsible for the large shipments in recent months.

The Swiss customs department publishes trade statistics by weight and value. When using the average monthly gold price to compute the estimated fine gold content from the weight and value disclosed, it shows the gold exported by Venezuela since December 2013 was roughly “99.5 % pure” (see the grey dots in the chart below). In the wholesale gold market bars have a minimum fineness of 995 per 1,000 parts. Data from Switzerland’s trade statistics implies the metal imported from Venezuela is wholesale bullion from the BCV, not mine output that has a lower fineness.

Switzerland gold import venezuela february 2016
Chart 1. The gold imported by Switzerland from Venezuela prior to December 2013 was likely mine output (roughly 80 – 85 % pure), imports after December 2013 from Venezuela must have been supplied by the BCV’s official gold reserves, as the batches were roughly 99.5 % pure. Any estimated purity above 100 %, in reality would be more like 99.5 %.

According to Eurostat no EU member has imported any gold from Venezuela in the past years – Eurostat’s data is updated until December 2015. International Merchandise Trade Statistics provider COMTRADE reports Venezuela hasn’t exported any significant tonnages of gold to countries outside of Europe in recent years either – COMTRADE data is updated until November 2015. However, trade statistics do not grant how much gold is, or is not, crossing borders around the globe. Gold can cross international borders without appearing in trade statistics. As an example, we know the BCV shipped an unspecified quantity of gold out of Caracas to an international destination on 2, 3 and 7 July 2015, while these shipments cannot be traced in any trade statistics at my disposal.

How much unencumbered gold the BCV has left is unknown. For sure Venezuela’s official gold reserves are not as much as the World Gold Council portraits. According to the Council the BCV still holds 361 tonnes as of Q4 2015, though the balance sheet at the BCV website from November 2015 states “Oro [gold] monetario 69,147,656,000”, which is worth $11 billion US dollars at an official exchange rate of 0.16. This equates to roughly 296 tonnes of gold, at a nine months rolling average gold price of $1,152.68 an ounce (which is how BCV gold is valued, pointed out by Ronan Manly). According to the BCV website, Venezuela’s official gold reserves declined by roughly 60 tonnes from February until June 2015 (from 361 tonnes to 301 tonnes).

The 296 tonnes of monetary gold, as per November 2015, are not fully unencumbered, as the central bank has entered into swaps (of at least 50 tonnes) with bullion banks that provided the metal to remain on the BCV’s balance sheets. 

According to my estimates the upper bound of the BCV’s unencumbered gold reserves, as of 9 March 2016, is 152 tonnes, the lower bound is 0 (zero). The upper bound estimate is based on the official gold holdings of Venezuela in February 2012 at 366 tonnes, assuming all was unencumbered at the time, after which I have subtracted:

  • Venezuelan (995 fine) gold exports to Switzerland in 2013 at 8 tonnes. This gold could have been involved in a swap, leaving the metal on the BCV balance sheet, while it should be subtracted from Venezuela’s unencumbered reserves.
  • Venezuelan gold exports to Switzerland in 2014 at 12 tonnes. Again, this could have been gold involved in a swap, leaving the metal on the BCV balance sheet, while it should be subtracted from unencumbered reserves.
  • The 50 tonne gold swap between the BCV and Citibank executed in April 2015 for a tenor of 4 years. Presumably this swap included the 50 tonnes the BCV had already stored at the Bank Of England. The gold in question remained on the BCV balance sheet according to the website the Venezuela Analysis.
  • A 60 tonne decline shown on the balance sheet of the BCV from February 2015 until June 2015.
  • Venezuelan gold exports to Switzerland in September, October, November and December 2015 at 24 tonnes in total. This could have been gold involved in a swap, leaving the metal on the BCV balance sheet, same as in 2013 and 2014.
  • Venezuelan gold exports to Switzerland in January, February and March 2016 of 60 tonnes in total.

The calculation excludes the volumes of:

  • The unspecified quantity of gold exported out of Caracas to an international destination on 2, 3 and 7 July 2015.
  • The gold swaps between BCV and the Bank for International Settlements carried out “in recent years”, as reported by Reuters in February 2016 (these deals can be related, for example, to the exports to Switzerland performed in 2013 and 2014)
  • The gold swap with Deutsche Bank in early 2016, as reported by Reuters in February 2016 (this deal can match the exported metal in January or February 2016).

In theory the lower bound of the BCV unencumbered gold reserves is zero, as the three points above can have caused an additional decline in unencumbered reserves of 152 tonnes, or the central bank has sold or swapped significant tonnages we don’t know about.

Please read my post “GOFO And The Gold Wholesale Market” for an explanation of swaps. 

More references about Venezuela’s official gold reserves can be found in previous posts on BullionStar Blogs:

Venezuela exported 12.5 tonnes of gold to Switzerland on 8 March 2016, via Paris. By Ronan Manly, 16 March 2016.

Venezuela Exported 36t Of Its Official Gold Reserves To Switzerland In January. By Koos Jansen, 19 February 2016.

Venezuela says adiós to her gold reserves. By Ronan Manly, 1 November 2015.

Venezuela’s Gold Reserves – Part 2: From Repatriation to Reactivation. By Ronan Manly, 14 May 2015.

Venezuela’s Gold Reserves – Part 1: El Oro, El BCV, y Los Bancos de Lingotes. By Ronan Manly, 13 May 2015.

Venezuela Exported 36t Of Its Official Gold Reserves To Switzerland In January

Switzerland has net imported 35.8 tonnes of gold from Venezuela in January 2016. This unusual high tonnage must be gold from the central bank of Venezuela – Banco Central de Venezuela (BCV) – that has been swapping metal with banks or simply sold it in the open market. Remarkably, after Venezuela repatriated 160 tonnes in official gold reserves from 25 November 2011 until 30 January 2012, it started to slowly export this gold to the world’s largest gold trading and refining hub, Switzerland, in 2015. How much unencumbered official gold reserves Venezuela has left is unknown.

Venezuela’s economy is in dire straits. Adding to failing economic policy by the government the country gets nearly all of its export revenue from oil, of which the price has declined roughly 70 % since 2014. Venezuela’s foreign exchange reserves are dwindling fast, from $24.2 billion dollars in February 2015 to $14.8 billion dollars in November 2015, while Inflation is said to be triple-digit and Credit Default Swap (CDS) data shows that traders see a 78 % chance on default, according Reuters. In an effort to avoid catastrophes the BCV has a very strong motive to employ its official gold reserves.

The 35.8 tonnes of gold in question that arrived in Switzerland in January 2016 must be sourced from the vaults of BCV in Caracas, because Venezuela has no significant gold mine output, according to the US Geological Survey its annual production stands at approximately 12 tonnes, and its citizenry is unable to sell such tonnages. If we look at historic cross-border trade we find that gold export from Venezuela to Switzerland commenced in 2012 with 4 tonnes, followed by 10 tonnes in 2013, 12 tonnes in 2014 and 24 tonnes in 2015. It’s possible the shipments in 2012, 2013 and 2014 were largely sourced from Venezuela’s mine output, but it’s impossible the shipments in 2015 and 2016 were not sourced from the BCV.

From the data provided by Switzerland’s customs department we can estimate the purity of the gold traded by using the average monthly gold price and subsequently compare the weight to the value disclosed in the reports. In the chart below we can see that until May 2013 the gold Venezuela was exporting to Switzerland was roughly 80 % pure, this could have been for example doré bars from mines or coin bars from the BCV, while starting from December 2013 the shipments were roughly 99.5 % pure, suggesting the gold came predominantly from BCV in London Good Delivery bars or US Assay office bars.

Switzerland gold import venezuela
Chart 1. Non-monetary gold import Switzerland from Venezuela, the purities are estimates.

There is a vast pool of information on everything related to BCV’s official gold reserves, collected by my colleague Ronan Manly in three extensive blog posts, released on 13 May 2015, 14 May 2015 and 1 November 2015. From these posts we learned, inter alia:

1) By February 2012 Venezuela owned roughly 366 tonnes in official gold reserves, of which 316 tonnes were stored in Caracas – in equal amounts of Good Delivery bars (995 fine or higher) and US Assay office bars (995 or lower) – and 50 tonnes were stored in London.

2) In November 2013 talks started between BCV and Goldman Sachs for a 1.45 million ounces (45 tonnes) gold swap (a dollar loan collateralized with gold), which was expected to be settled at the Bank of England in London. But allegedly a deal was not reached.

3) The topic was renewed in March 2015 when Reuters reported several Wall Street banks were pitching at BCV for a 1.4 million ounces swap to be agreed before the end of April 2015. At the end of April 2015 El Nacional reported Citibank had won the pitch. El Nacional wrote, “the gold will remain at the vaults of the Bank of England” and the Venezuela Analysis wrote, “the value of the gold will continue to appear on the Central Bank’s balance sheet – an advantage that Goldman Sachs denied the in earlier talks”. Implying, the 50 tonnes of gold BCV stored in London was swapped for dollars with Citibank.

4) Manly calculated from the monthly balance sheets published by BCV that Venezuela’s official gold reserves had dropped in March and April 2015 by roughly 61 tonnes in total from 363 tonnes to 302 tonnes. He concluded this decline was not related to the swap deal with Citibank.

5) On 1 July 2015, Venezuelan news site La Patilla published an article titled “BCV exported for pledging [swapping] the gold that Chavez had repatriated”, which described how monetary gold was exported by airplane from Caracas on 2, 3 and 7 July 2015.

BCV

Furthermore, Bloomberg reported on 19 August 2015:

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

“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.”

On 5 February 2016 Reuters reported BCV was in talks with Deutsche Bank to carry out gold swaps in order to improve the liquidity of its foreign reserves. In addition Reuters noted:

The sources said Venezuela in recent years had been carrying out gold swaps with the Switzerland-based Bank for International Settlements (BIS) in operations ranging in duration from a week to a year. One source said Venezuela conducted a total of seven such transactions.

BIS halted these operations last year, both sources said, as a result of concerns about the associated risks.

Reuters wrote Venezuela’s gold involved in swaps does not enter the market. I beg to differ. Normally, in a swap the gold is sold spot from the client to the dealer in exchange for dollars, while both parties agree to reverse the purchase at a future date at a fixed price. If the gold is physically moved during the swap depends on several factors. Because Venezuela had repatriated 160 tonnes of gold in 2011/2012 this metal left the London Bullion Market Association’s chain of integrity. Hence, Gutierrez stated no bank is going to take gold collateral that’s held in Caracas. When BCV’s 50 tonnes stored in London were already on swap with Citibank, it was forced to bring gold to the bullion banks when it needed additional dollars. The gold moving to Switzerland is an example.

It’s not possible to trace exactly how much gold BCV has exported for swap deals, or potentially sales, through foreign trade statistics. Official gold reserves are monetary gold, which is exempt from being disclosed in foreign trade statistics (click this link for a detailed analysis on how monetary and non-monetary gold transfers are recorded in foreign trade statistics and in balance of payments around the world). Whenever BCV chooses to ship any of its gold abroad, for swaps or sales, there are two options with respect to foreign trade statistics, (i) the monetary gold is exported abroad, or (ii) the monetary gold is demonetized in Venezuela and exported abroad. Only in the latter option the gold would show up in foreign trade statistics, as such data solely records movements in non-monetary gold. For all clarity, gold can leave the London Bullion Market Association’s chain of integrity although still being monetary gold, these are separated classifications.

From all sources and evidence presented above actually I think both options are explored. We can clearly see demonetized gold going to Switzerland, but there are also hints monetary gold is exported abroad. Foreign trade statistics by the UK, Switzerland and Hong Kong – the major gold trading hubs – have not shown any gold import from Venezuela reflecting BCV’s declining reserves in March and April 2015 or export in July 2015, meaning Venezuela had probably exported metal invisibly as monetary gold. Needless to say, if BCV would sell any of its gold reserves directly to a fellow central bank, for example the People’s Bank Of China, the related shipments would never show up in foreign trade statistics.

From all information at my disposal I cannot conclude how much gold BCV has on swap or unencumbered in the vaults in Caracas. Surely, Venezuela its official gold reserves are not as much as the World Gold Council portraits. According to the Council BCV still holds 361 as of Q4 2015, though the balance sheet at the BCV website from November 2015 states “Oro monetario 69,147,656,000”, which is worth $11 billion US dollars at an official exchange rate of 0.16, and roughly 296 tonnes of gold at a nine months rolling average gold price of $1,152.68 an ounce (which is how BCV gold is valued, pointed out by Manly). The 296 tonnes will not be fully unencumbered as bullion banks offer swaps while the gold remains on the client’s balance sheets (/double counting).

Obviously Venezuela is in a tight spot. The country is trying desperately to survive on its last reserves and the bullion banks seem to offer shark deals. How long this can go on is anyone’s guess.

H/t @freegoldsGoldreporter.de