Gold in Latin America

The gold of Latin America

Where are the largest gold reserves concentrated in the region? Why do some countries accumulate more minerals than currencies? Experts take a look at Latin American reality.

Among the 100 countries with the largest national gold reserves in the world, Latin Americans appear in quite discrete positions. According to the latest report of the World Gold Council, updated to November 2017, the one with the largest reserves in the region is Venezuela, with 187.6 tons of gold, which places it 24th worldwide.

At the head are the United States and Germany, with 8133.5 and 3373.3 tons of gold respectively. “Gold is always seen as something very safe. The countries of the global north have enough gold reserves and in fact the exploitation is largely for those purposes,” says Stefan Peters, a political scientist at the University of Kassel. “In Latin America, however, the reserves are not that important, “he adds.

Although the almost 190 Venezuelan tons are comparatively a much lower amount, the truth is that within the region they place it well above its neighbors. They are followed by Mexico (120.5 tons), Brazil (67.3 tons), Argentina (61.7) and Bolivia (42.5), which together with Venezuela are among the 50 countries with the largest reserves worldwide. 

At the other extreme are countries like Chile and Uruguay. With amounts between 0.1 and 0.2 tons, they do not even appear within the first 100 countries. “Central banks can invest in gold, silver or also in currencies, which they use as a store of value. When there is economic instability, as they do not know how currencies will behave, they go to gold reserves and therefore it is that they are increasing, ”explains economist at ECLAC’s Natural Resources and Infrastructure Division, Miryam Saade.

Río de oro, descenso de la Mina La Mexicana, La Rioja, Argentina

The reserves support the currency in circulation and allow them to respond to debts. In this sense, not only gold matters, but the total reserves, which indicate the country’s capacity to face payments.

Also, the net tons of gold are not the only factor to take into account. So is the proportion that gold represents within the reserves of the central banks of the countries. 

In Latin America, Venezuela is not only the country that conserves the most gold, but it also reaches the highest proportion of its reserves, 74.8%. In percentage terms, Venezuela is followed by Ecuador and Bolivia, but at much lower levels. In Mexico, meanwhile, the country that has the second largest amount of gold in Latin America, the metal represents only 2.8% of its reserves.

Security in times of crisis

“Venezuela has been characterized by having generally high gold reserves, but it was very clear that with the crisis of 2008-2009 there was an increase, as they began to buy and stock up,” says Miryam Saade.

In general in Latin America, although not in all countries, there was an increase in gold in those years, but in Venezuela at much higher levels. Now a decline in this type of reserve is observed in the majority, while Venezuela currently maintains it.

“Gold is a backup. When the percentage within the reserves is high, that tells me that they are not trusting the currencies and believe that keeping their gold reserves will give them more reliability and more security,” says the expert.

“They are occupying gold as a store of value in the face of the crisis and have kept these reserves also due to the economic insecurity of the country,” he adds.

“Now, with the fall in the price of oil, Venezuela’s income has fallen and one could start to see a de-accumulation of its gold reserves, if they do not have income,” says the economist, who also warns that “maintaining a high amount Reserve is expensive for the bank. Since they are not high risk, the interest rates are very low, so they are losing the opportunity cost by maintaining that level.”

Producers and prices

Latin America is an important region worldwide in production and there is a growing trend. “We see many new producers in Central America, in the Caribbean and also in Argentina, mining has increased. It is an important mineral for the exports and economies of Latin American countries,” says Stefan Peters.

The price of gold can also influence the amount of reserves. “When the price is lower, some countries have taken advantage of buying and provisioning their reserves, which are decisions of each central bank,” explains Miryam Saade. With the 2003 commodity boom, gold reserves rose in value.

Although prices are still at high levels, they are down from their high a few years ago. Although the prices of different natural resources do not have the same trend, there is a certain similarity, explains Stefan Peters: “When the price of oil is low, so too is the price of gold.

In Venezuela, with the lowest oil, if they need financial resources and sell gold on the world market, they will find that the price is not booming either.”

Added to this is the question about liquidity. The opportune moment to liquidate those reserves has a lot to do with the price, but “clearly if Venezuela has a need, it is going to sell gold reserves, which it should do for all the indebtedness it has. That’s what the reserves are for,” says Miryam Saade.

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