Central Banks to remain net Gold buyers despite Venezuela

November 1, 2017

New York (Nov 1)  Metals Focus said that central banks collectively are likely to remain net buyers of gold despite reports that Venezuela let $1.7 billion of gold swaps with Deutsche Bank lapse during October.

The consultancy projects that net official-sector purchases are projected to drop 5% year-on-year to a seven-year low of 370 tons this year, although this is down from 646 in 2013.

 In the case of Venezuela, International Monetary Fund data shows the country’s official-sector holdings fell from 361 tons at the end of 2014 to 188 by the end of August.

“It is important to note that, instead of outright sales, such a hefty decline in recent years reflects a series of swaps between Venezuela and Western banks, where the central bank received cash liquidity in exchange for putting up its gold as a guarantee,” Metals Focus added.

 However, recent news suggest that the country allowed its gold swap with Deutsche Bank to lapse in October, with an opposition legislator saying Venezuela received $1.2 billion in cash from Deutsche Bank after putting up $1.7 billion worth of gold in guarantee.

 Metals Focus calculated that the equivalent tonnage swapped stood around 43. Looking ahead, given a still struggling economy, there is a risk that Venezuela will decline to repay the cash (as agreed in the swap deal), which could result in additional official-sector sales, Metals Focus added.

 Even so, this does not represent a sea change in sentiment towards gold among reserves managers. After all, a desire to diversify away from largely U.S. dollar-denominated reserves will continue to make gold appealing to reserve managers; geopolitical risks also remain a concern.

 As a result, the official sector as a whole is anticipated to remain a net buyer over the short to medium term, although the pace of these purchases may slow further in the coming years.


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