No gold left in Venezuela?

Although the general American media has not given much coverage to the story, economic conditions in Venezuela have deteriorated over the past few years. The downturn has accelerated as the government has increased the inflation of the money supply.

Inflation of the money supply has been so massive that in 2015 the Venezuelan central bank ordered the printing of 10 billion notes (for a population just above 30 million) in 2015. In contrast, the United States, with a population more than 10 times that of Venezuela, only introduced 7.6 billion notes into circulation last year.

In the past few months store shelves in that country have largely been empty, especially of food. Where merchandise is for sale, it takes massive quantities of bank notes to pay for it.

How bad are things getting in Venezuela? De La Rue, the world’s largest currency manufacturer, reported in March that it was still owed $71 million from the Venezuelan government for notes that were delivered just before national elections late last year. In the circumstances, the company is unwilling to print any more Venezuelan currency.

Over this past weekend, rioting and looting broke out in many parts of Venezuela. The country’s president imposed a 60-day state of emergency, which almost certainly will be too little, too late. By the time this column is posted, it is possible that the Venezuelan government may have already collapsed.

The dire state of the economy is not caused by a lack of wealth. According to the Central Intelligence Agency World Factbook, in early 2015 Venezuela had the greatest quantity of proven oil reserves of any country in the world (Saudi Arabia is No. 2, with less than 90 percent of Venezuela’s reserves; Canada is No. 3, with less than 60 percent of Venezuela’s proven reserves).

The Venezuelan government made international headlines from late 2011 to early 2012. In August 2011, it reported that 211 of its 365 tons of central bank gold reserves were stored internationally in bank vaults in the United States, Canada and Europe. Then Venezuela President Hugo Chavez issued an order to repatriate the central bank’s foreign-stored gold reserves. By the end of January 2012, 160 tons had been brought back to Venezuelan soil.

What has since happened to the central bank’s gold reserves is not entirely clear. As best I can deduce, much of the reserves were put up as collateral for the government to obtain loans to subsidize budget deficits. It looks like this collateral may have already been liquidated by primary trading partners of the U.S. government to assist in the U.S. government’s efforts to suppress the price of gold.

Should the Venezuelan government collapse, it will probably be determined that virtually all of that nation’s central bank gold reserves are exhausted. Because of this, that means that there would be little physical gold available to subsequently dump onto world exchanges.

In my judgment, a collapse of the Venezuelan government is unlikely to result in physical gold hitting the world markets in any quantity sufficient to impact the price. Also, since I suspect many savvy traders already realize this, much of the potential impact has already been reflected in gold’s current price.

Where the gold market could be affected by what happens in Venezuela will be from investors who are blindsided by that government’s demise or by the non-existence of physical reserves equal to the quantity officially reported. When this information comes out, it can only spur a modest increase in demand for the physical metal, resulting is a minor rise in price. I cannot see any scenario where such an event would result in lower gold prices.

Take ICTA dealer survey

As I mentioned in this column in March and again two weeks ago, the Industry Council for Tangible Assets (ICTA) is conducting a coin dealer survey to add ammunition to support efforts to gains rare coins and precious metals bullion sales tax exemptions in the 17 states that do not have any such exemptions, to help defend existing exemptions that may come under attack, or to expand existing partial exemptions.

At the end of last week, ICTA began sending out this survey to members via email. Other organizations will also be forwarding this survey to their member dealers. Initial response has been encouraging, but we need to hear from dealers across the country to build statistical validity. Coin dealers of all kinds can go to http://www.surveygizmo.com/s3/2769160/Sales-Tax-Exemption-Survey to fill out the survey.

As I mentioned, your response will be sent to David Crenshaw, ICTA’s chief operating officer. Although I will be working with the survey results, neither I nor any other coin dealer will have access to any information that is identifiable by who submitted it. Your assistance will take about 10 minutes and would be most appreciated.

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com). His radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).

More Collecting Resources
• Purchase your copy of The Essential Guide to Investing in Precious Metals today to get started on making all the right investing decisions.
• Download The Metal Mania Seminar with David Harper to learn more about the metals market.