This has been rumoured for several weeks, for Venezuela… run by the truly inept President Nicolas Maduro… is in the direst of fiscal straits. Weak crude oil prices and inept government policies have swept Venezuela’s stores of the most basic of needs, all the while as President Maduro has blamed the US for the problems his policies have caused.
At any rate, rather than openly selling its gold reserves into the market, Venezuela has been able to “pawn” its gold to Citibank, and the Bank has given the Venezuela government a loan for apparently $1 billion, with the gold as collateral. Venezuela shall have the right-of-first refusal to buy the gold back by returning the cash in question, but we suspect that in the end Venezuela will allow the gold to remain with Citibank and for the “pawn” to resolve itself that way. Almost certainly Maduro & Company will squander the $1 billion if the past is prologue.
Why then did gold rally on this report? Because a huge, prospective seller has been removed from the market. The market was concerned that Venezuela would have to sell its gold and would do so amidst panic; instead, the gold has now moved into far stronger hands and the market is relieved of this fear.
This article was written by Dennis Gartman. Gartman is editor and publisher of The Gartman Letter, and a strategic partner with the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN) who lends his institutional insight to educate advisors and investors about trading gold in different currency terms.