Not Much To The “Move” in Venezuela’s International Reserves

August 15, 2011

I found this report about Venezuela moving its international reserves somewhat funny. Really. What’s the problem?

In reality, there isn’t much to move in the end and I would like to see if it is true that Venezuela will move back its 11.76 million Troy ounces of gold. To give you an idea, 11.76 million Troy ounces of gold happens to be some 365 Tons of gold. Since each Ton is about 907 Kilos, that is a lot to move back to Venezuela. About 150 armored trucks at each end. Moreover, strategically, having it abroad is better for the Government, they can sell it and nobody would even know.

I had not looked at Venezuela’s gold reserves in a while, but a comment from a reader made me look and calculate again and lo and behold, Venezuela’s International reserves are roughly at the same level as Jan. 1st of this year, only because gold has gone up a lot this year. The graph below shows the value of the gold in the country’s reserves, where I have used the accounting of the Venezuelan Central Bank, which according to the auditors is that the price used is the average for the last 60 days:

As you can see, gold reserves have gone up from a bit above US$ 16.25 billion on Jan. 1st., to roughly US$ 18.4 billion on August 10th., for a difference of US$ 2.15 billion dollars. Given that reserves were US$ 28.77 billion that same day, this means that reserves have actually dropped US$ 1.47 billion since Jan. 1st (when they stood at US$ 30.24 billion) despite much higher oil prices. But since gold reserves have gone up by US$ 2.15 billion, it turns out that reserves are down even more than it appears at first sight, a total of US$ 3.6 billion.

But more importantly, of the US$ 28.77 billion, US$ 18.4 billion were gold, that represents essentially 64% of all reserves. Thus, the reserves that can really be moved, since I don’t believe the gold will be moved, is “only” US$ 10.37 billion dollars. I think gold reserves should be here anyway.

Except form that you have to subtract about US$ 2.08 billion of “special drawing rights” which Venezuela has at the IMF, which would only leave US$ 8.29 billion to move.

Then, the Central Bank bought US$ 1.7 billion from PDVSA in the PDVSA 2013 bond and was assigned about US$ 1 billion of the Global 2031 bond, that’s US$ 2.7 billion of Venezuelan bonds, which in the end it does not matter whether they are here or in Ruanda, we know the owners and the Central Bank needs them close and handy to sell into the SITME foreign exchange system. Subtract those US$ 2.7 billion and you have US$ 5.59  billion to “move”. Then there is Venezuela’s contribution to the IMF, about US$ 300 million and you have only US$ 5.29 billion.

There could be other things, but we don’t find out about them until its very late. The Central Bank regularly lends money to PDVSA, we don’t know when they do it, we know when it gets paid back. Suppose that’s zero right now and this “newsy” move would apply to about US$ 5 billion in investments.

Five billion? In a country where a US$ 29 billion discrepancy does not even make the news except in obscure blogs one and/or two?

Who cares if they move it?

Note added: Here is the “Punto de Cuenta” for the transfer of reserves. The proposal is indeed to transfer the “operating reserves” within two months. There is a longer term plan to move the gold back to Venezuela (What is not in Venezuela). However, it says this will violate the rules. Now, the reason seems to be to protect them form being frozen by the Federal Reserve. Whether they are in Switzerland (where 60% are) or in the US, if it is part of the compensation system and they are worried the funds can be frozen. This may have to do with the concerns about helping Iran and that the US imposes a financial ban on Venezuela. But it may also have to do with fears that Exxon will sue to freeze Venezuelan assets if it wins the arbitration case. I would bet is the former, not the latter, sovereign nations have protection from such suits.

Now, the US$ 5.25 billion figure is even lower, because there are about US$ 900 million more in there that is not that liquid that I had not counted, so we are talking about US$ 4.3 billion in the end.

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43 Responses to “Not Much To The “Move” in Venezuela’s International Reserves”

  1. Wiley Nawn Says:

    Can I just say what a relief it is to find someone who really knows what theyre writing about on the net. You certainly know how to bring an issue to light and make it important. More people need to read this and know this side of the story. I cant believe youre not more well-known because you certainly have the gift.


  2. […] Miguel Octavio is unfazed. One of his commenters speculates, Is it possible that they are trying to get these reserves into a place where the new government can’t get at them? […]

  3. Antonio Jaurez Says:

    Chavez is recalling all gold reserves so he can split it all with his co-conspirators before his regime collapses. It is the last remaining government wealth that Chavez has not taken over. Perhaps the Castros will get a large share?

    One thing is certain- Chavez is not doing this to help the Venezuelan economy.

  4. m_astera Says:

    Gold:

    “Wednesday, August 17, 2011
    Hugo Chavez Demands 99 Tons of Venezuelan Gold Returned From the Bank of England/ JP Morgue

    We just reported that Hugo Chavez has nationalized the entire Venezuelan gold industry this afternoon.
    Well, Hugo didn’t stop there, as latest headlines flashing indicate that Chavez has requested that the Bank of England return 99 Tons of Venezuelan gold held on deposit, and a total of 211 Tons of gold held abroad (WSJ).

    For those with any knowledge of the cartel, you know where this is heading.
    For those who don’t….the Bank of England currently stores Venezuela’s gold in the vaults of (per Bloomberg) JP Morgan, Barclays, and the Bank of Nova Scotia.

    A last check of physical gold inventory in The Morgue’s vault showed a whopping 338,303 total ounces of gold…roughly 10.6 tons.

    In an absolute shocker to all who follow gold and silver here, are we about to see the COMEX GOLD market busted/default before COMEX SILVER?????

    Look for gold to VAULT past $1800 in the access/ Asian markets tonight when this news spreads.

    If Chavez carries through with this ultimatum, look for Venezuela to receive the Gaddafi/ Libyan treatment within the week.
    http://silverdoctors.blogspot.com/2011/08/hugo-chavez-demands-99-tons-of.html

    • moctavio Says:

      Makes no sense to me. Why would the fact that Chavez is moving 99 Tons of gold from England to Venezuela move the price of gold up?

      In fact, when the dumb money starts betting on something, it’s time to go the other way.

      Short Gold?

      • Carlos Says:

        Miguel:
        Short Gold?? Not at all.
        I read the silverdoctors post and, as far as I understand, they say that a good stake of Venezuelan gold is actually stored in JPM vaults (the morgue).. and since JPM vaults reported roughly 10 tons.. JPM looks largely short.
        If Chavez asks for physical delivery there will be a rude short squeeze..and this is certainly bullish
        Am I wrong?
        Anyhow, I closed today my long GLD positions and opened a bullish GLD October spread.. Very low risk, limited profit and limited loss.

        • moctavio Says:

          Gold under custody can not be used at all in JPM’s operations, that is separate from the assets and trading of the bank, thus whether the 10 tons are there or here is irrelevant to the markets.


  5. […] Miguel Octavio is unfazed. One of his commenters speculates, Is it possible that they are trying to get these reserves into a place where the new government can’t get at them? […]


  6. I am no lawyer, but I do not think the protection applies to PDVSA or any Court would think it does. That si one of the reasons why a PDVSA default would be so difficult.

    Personally, I think Chavez is more worried about sanctions than about default.


    • It is not a joke, “investors” purchased 25.000 MM $ in bonds without reading carefully articles 300, 302, 302,303, from 2000 Constitution and the LOH. The Republic of Venezuela (the fisco) holds the property over the resource. It gives the resource (fields) to the State to produce oil, sell it and generate the rent. The State – a very ambiguous body in our legislation- creates PDVSA as oil operator, which produce “rent” for the fisco, for the Republic. Oil rent is for the King and flows as royalties (rights) from the wells; the Treasure in the name of Republic of Venezuela gets the money.
      The small print (lot of people no matters they are lawyers or sweepers, do not like to read small print, many think that are the same everywhere) says PDVSA owns nothing. Investors look at oil without giving much regard who is the real owner, or who has the property rights over the rent, oil fields. They do not care who dispose those property rights. They are wrong. I have an essay about this particular discussion, but I have not the rights. I try to send it if there is any interest.
      Let me give you an insight. In the year 2000-2002 when discussing the LOH most of advisors , lobbies and consulting firms, locals and internationals in the oil sector, cheered the new LOH. Four year after, with the same Lay in his hands Chavez “defaulted” 47 contracts, change the structure of international oil corporations in Venezuela, starting with Exxon, Chevron, Conoco, Statoil Total, Repsol “y les pateo el trasero” etc. etc. etc……Where went these cheers?

      • Hernie Says:

        I see your point Alexander. Do you have any comments regarding the seizure of oil tankers and shipments that are on transit? Do they also fall under this category? I would appreciate if you could provide a way to get to the essay you comment. Thanks you.

  7. Hernie Says:

    Miguel, you mention that sovereign nations have protection againts lawsuits that would freeze their assets, which is something I also happen to know about. But something that I am not that so sure about is how does PDVSA end up playing here? Would you say its foreign assets and more importantly, oil shipments, are also protected from this lawsuits?

    I read a research piece a while ago concerning this topic and it was quite interesting. In that same piece it is also mentioned how one time a hedge fund made a killing by buying defaulting Congo debt and then chasing their oil tankers until they were able to seize one and force the govt. to pay. What do you think about this?

    Thank you..


  8. […] Miguel Octavio is unfazed. One of his commenters speculates, Is it possible that they are trying to get these reserves into a place where the new government can’t get at them? […]


  9. […] extreme measure, it’s worth noting that this might not be as drastic a move as it sounds. Blogger Miguel Octavio has worked out that of Venezuela’s $29bn-odd reserves, it is probably only going to be possible to move about […]


  10. Even worst, BCV delivers bolivares to PDVSA in exchange of PDVSA bonds. The last BCV law reform authorizes BCV to carry out these operations. BCV is now a “development bank”. Off course PDVSA can buy US money at CAIVI at 4.3 Bs/$. You aint’ seen anything jet!! Do not forget to sell your bonds as Chavez may lose his ability to payback interest….

    • Alexander Says:

      Allow me to clarify my last post. The reform of BCV’s law in 2009 authorizes Central Bank to purchases pubic corporations’ debt (bonds) in national currency (bolivares). By doing, that government hopes it will correct what Treasury was doing during the last two years, by issuing “pagares” to PDVSA. The last of these “pagares” as you might remember BCV purchased from Treasury the last day before devaluation on 31 December 2010. Treasury received 150% more bolivares. Any public corporation can sell bonds to BCV; for instance, CANTV (communications), EDELCA (electricity), cements factories nationalized two years ago, CVG, Sidor (steal), Alcasa & Venalum (aluminum), Bauxiven (Bauxite), and off course PDVSA. Any of these public corporations could use his bolivares and go to CADIVI and purchase dollars at rate of 4.3 bolivares. On the other hand, BCV could easily burn these bonds together with old bills taken out of circulation.

  11. moctavio Says:

    I actually converted the number of Troy ounces in the BCV financials to Tons and looked up a table that had a number that differed by one Ton, but lost track of it. And yes, BCV gives money to PDVSA, first as a “Pagare”, then when pay time for the Pagare arrives, PDVSA issues bond and pays BCV with it. Amazing, no?

  12. Carlos Says:

    According to the World Gold Council the gold actually exists. I read 1 month ago a WGC report speaking about 386 Tons and a Gold investors newsletter said 403 Tons..Miguel read 365 T.. So, all are close figures.
    WGC also rated Venezuela Central Bank as the 15n gold holder in the world.
    Investors do not look like worried by the proposed MOVING of GOLD to friend countries, as reported today by other source: all venezuelan bonds are up today.

  13. Kepler Says:

    I remind you: Venezuela bought 49.99% shares of a Russian bank for 400 million dollars. I am sure that deal doesn’t stop there.

  14. Dr. Faustus Says:

    1) There are few remaining Venezuelan assets located in western locals. Switzerland may be one of the last.

    2) The transferal of those assets to places like Cuba, Russia or China, where the legal standing of those assets is extremely nebulous under international law, is an event which bears watching.

    This is a much bigger story than what first appears. Pay attention. I think we’ll be talking about “this” for many months to come.


    • What would think a holder of Venezuelan bonds, of both sovereigns and PVDSA’s as international reserves are now something different, not what he thought when he purchased these bonds?.
      Rusia and China are our main creditors today. One has built a unsustanaible financial agreement (credito chino) to get oil and sell its vitualla; and the other sells war chatarra.
      What would happens if tomorrow a new government discusses the unlawful and unconstituctionallity of “credito chino”, if any ?………
      What would happens if a new government do not want to buy Varsovia Pact chatarra any longer.?
      I feel than I am blackmailed. It looks that Rusia and China are considering that government is going to loose elections, or that they are not going to be around anymore.


  15. ………jitters, fear, hunger, are free of charge!!

    • CharlesC Says:

      If gold -is sent to Cuba-*(&*(&-will go and take it back!!!!
      All of this crap is illegal, people!
      Chavez is a sorry, lying, thief, traitor.


  16. Just a short comment.
    A Russian company today holds the huge gold mine Las Cristinas in Estado Bolivar, such concession was taken over from Canadians by Venezuelan government, it was expropriated or canceled if you like. Canadians took the case for arbitrage.
    I would have Venezuelan sovereigns bonds and PDVSA one; I think I should look around for more information about the “move” of gold and others international reserves.
    Take care!! Just a short comment. A Russian company holds today the huge gold mine Las Cristinas in Estado Bolivar, such concession was taken over from Canadians by Venezuelan government, the contract was violated; the Canadians took the case for arbitrage.
    If I would have Venezuelan sovereigns bonds and PDVSA one, I think I should look around for more information about the reasons of that “move” of gold and others international reserves to Russia, China and may be Cuba.
    In the BCV “punto de cuenta” to the President about the transfer of international reserves, including gold, to Russia and China, it is interesting that today Russia and China are the main creditors of Venezuela and P{DVSA. …”zamuro comiendo alpiste?, it is a say, or adage in this country”.
    Take care!


    • correction: “If I would have Venezuelan sovereigns bonds and PDVSA ones; I think I should look around for more information about the “move” of gold and others international reserves”.

      We have to learn others exentricities and exuberances, in a revolution, anything could happen, nothing is left a side. Off course, unless you think that what we have it is not a revolution.

  17. moctavio Says:

    There is, of course, another possibility, that the gold will indeed be moved…to Cuba.

  18. island canuck Says:

    Wow Buster – great story.
    Sounds exactly like Venezuela.

    Just a few choice quotes:

    “Of course the “official” Argentine inflation rate remains in the single digits, but nobody takes that number seriously. According to a June survey of Argentine inflation expectations conducted by Torcuato Di Tella University, the median projection for the next twelve months is a remarkable 25%.”

    “Argentina enjoys an abundance of agricultural resources, and high commodity prices have been fueling strong economic growth. But the real inflation rate dwarfs the real growth rate, and this has had devastating consequences for the Argentine poor. “The poverty level is higher now than the worst moments of the 1990s,” former Argentine economy minister Domingo Cavallo told the New York Times this past winter. “Without a doubt, inflation is increasing poverty.”

    “Peruvian Nobel laureate Mario Vargas Llosa has said that the Kirchner government “is corroded by corruption, and to such an extent that it is losing its natural leadership and disappearing as a political reference for Latin America.””

    “Nevertheless, its quasi-autocratic president is hoping that rapid GDP growth and profligate public spending will help her secure re-election in October. With the opposition bitterly divided, four more years of Kirchnerism may be unavoidable.”

    Just change the country & we could be talking about Venezuela.

    • CharlesC Says:

      Absolutely-it was so disgusting to see the Sec.of State of US-Hillary Clinton-embacing, endorsing President Cristina Kirchner-there are so many more facts-that could be mentioned about Kirchner-and remember Sec.of State-embracing Corerra of Ecuador-and saying “this Admin is trying to befriend Hugo”-iin so many words- but he “won’t dance”-ie.she is stnding there with her “red dress on” -ha..
      ANyway-another topic- any and all opposition candidates running for President -should swear to -break with Cuba-and not support the dictatorship -to support a free Cuba. And ,stop all support for Cuba.
      Next-stop all business with Iran, and cancel all contracts with Russia-
      should I continue….

  19. Buster Hymen Says:

    and in that same vein……argentina never fails to fail….

    http://spectator.org/archives/2011/08/16/argentinas-illegal-antics

  20. Bill near Slidell Says:

    Venezuela has all of the right kind of gold it will need for a long time, black gold. Didn’t the IEA just confirm that Venezuela had the largest oil deposits on the planet? Someone did. I heard it on the radio or TV. That might be worth more than all the gold ever found. Oil will be selling at $200 a barrel in a 5 years, unless the global economy collapses from excessive debt, which although unlikely, is possible. $200, or $300 a barrel will add up FAST if someone can get it out of the ground down there!
    If anyone knows of anything that can replace oil as an affordable transportation fuel, please let me know. I want to get in early on that investment.
    Venezuela also has gold in the ground. (See ‘Venezuela Country Profile’ on the BBC web site.) A Canadian company wanted to open a gold mine a couple of years ago, but could never seem to get going. They may have been afraid to invest a fortune getting the mine going, only to have Hugo steal it.


    • I suggest you, before writting about oil reserves (read OPEP last reort about it) to go and take some advises from a geolog or oil engeneer. In order to produce a oil barrel from FBO you need lot of money, technology, an human resources. Venezuelan goverment lak of these. In order to go ahead with these oil reserves, it has to change not only the laws but constitution. By the way, it was noy IEA but OPEC.

  21. island canuck Says:

    It’s also worth considering the events that have lead up to this announcement. Chavez’ illness, the possible loss of the elections, the creative accounting in Fonden, etc., etc.

    Is it possible that they are trying to get these reserves into a place where the new government can’t get at them? Are they trying to cover their tracks and creative accounting.

    When the shit hits the fan either with his death or an oppo election win we’ll find out the truth (as much as we ever know the truth in Venezuela).

  22. m_astera Says:

    Here’s another smart cookie, from the UK Telegraph, 24 March, 2010:

    ” The price of gold has quadrupled since Gordon Brown sold more than half of Britain’s reserves.

    The Treasury pre-announced its plans to sell 395 tons of the 715 tons held by the Bank of England, which caused prices to fall.

    The bullion was sold in 17 auctions between 1999 and 2002, with dealers paying between $256 and $296 an ounce. Since then, the price has increased rapidly. Yesterday, it stood at $1,100 an ounce. (March 24, 2010)

    The taxpayer lost an estimated £7 billion, twice the amount lost when Britain left the Exchange Rate Mechanism in 1992.

    The proceeds from the sales were invested in dollars, euros and yen. In recent years, most other countries have begun buying gold again in large quantities.”

    Link

  23. m_astera Says:

    I’m not sure where you are getting your figures for gold holdings Miguel, but I’ll accept that the government has a piece of paper saying they own 11.76 million troy ounces of gold, that are supposedly in storage in a depository somewhere.

    Actually getting that gold out of the depository and back to Venezuela would be a whole other story. The first question is: Does the gold even exist? The second question would be: Does anyone else have a piece of paper saying they own that same gold? But assuming there really is a 365 ton stack of gold bars with Venezuela’s name on it, the third question is “is it gold, or gold-plated tungsten?”

  24. moctavio Says:

    The BCV could also start transferring gold to Fonden. Why Not? Chavista accounting is as creative as it gets.

  25. moctavio Says:

    Yes Carlos, I looked at it after your comment, had not looked at the amount since January. I even mention you in the post without a name.

    The PDVSA bonds are denominated in US dollars and go under “investments”, no two ways about it, they are not separate, Whether they are paid in Bs. or $ (the 2013 were to pay for a $ loan), the 2031 was for Bs. , they go under “Inversiones en Divisas” here, even if eventually they will be sold for Bs. that is the magic of BCV accounting:

    http://www.bcv.org.ve/excel/1_3_22_07.xls

    That was precisely the point over the fact that the BCV could hold them, it would convert hard dollars into PDVSA paper. The fact that they are in reserves can be seen by the low number under Titulos Publicos en Divisas (line 33 in the Excel spreadsheet) That would be the only other place to put the PDVSA bonds. They could go under “Activos Diversos en Divisas”, but it does not fit it in it. In fact, if you look at the Auditor’s Notes from December 2010:

    http://www.bcv.org.ve/pdf/notasiis10.pdf

    under “Activos Diversos in Divisas”, the only other possibility for these bonds, it says they mature in six to 18 months (IOU’s with PDVSA?)

    No matter what, remember, the gold can be sold. It is actually worth more even, since the 60 day average is lower than the current market value, so that Venezuela does indeed have US$ 29 billion in reserves, the PDVSA bonds could be sold in the international markets, for example, if push comes to shove. In fact the La Patilla note says its 6.5 billion for “liquid” reserves, they did not take something into account (the 2013?)

    If any of you has any idea, which other line item these could be in, please let me know.

    • Carlos Says:

      Crystal clear!!
      As far as I understand BCV took a couple of billions of greenback and “moved” them to PDVSA accounts, received PDVSA bonds and reported them as foreign currency assets or investments..
      So, a state owned Venezuelan company is issuing foreign reserve cash equivalents..

  26. plasmaj Says:

    the PDVSA bonds wouldn’t be included in the reserves figure. Those would be separate. But I don’t think markets will like the gold being moved to Venezuela. Gives uncertainty about what can happen to it there, and the accountability of the BCV, especially if there is an uncertain turnover (say Chavez dying)

  27. Carlos Says:

    Miguel,I post a comment with calculations like these in your blog focused on Giordani and Iris some days ago. Your figures are more accurate but, billion more billion less, the final conclusion is that movable, liquid, cash, reserves are just 8 billions. And let me add that one year ago there were near 15 billions of non gold reserves.
    There is something in your post I don t get: does the bcv pay in us$ the pdvsa bonds? As far as I understand these bonds ae bought in bolivares, then sold to sitme in bolivares.. So, why do you substract bonds from dollar reserves?

  28. moctavio Says:

    in Switzerand? I doubt it, but someone might steal it on the way. In any case, I think that gold should be here, impossible to sell! I do believe in sovreignty, really. It should have never left the country.

  29. sapitosetty Says:

    That report says they will bring the gold to Venezuela. It may make sense from their point of view, given the likelihood of arbitration decisions in coming months.


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