Venezuela’s economy is in trouble
Venezuela’s economy has been devastated by the drop in oil prices. The next two months may be a crushing time for the country, as it has more than $5 billion in maturing debt and interest payments by the end of the current year.
Venezuela has the world’s 16th largest hoard of gold reserves. It held 361 metric tons at the start of October. Gold represents 67.3% of the country’s reserves. Venezuela gets about 95% of its export revenue from oil. It may see its gold reserves plunge by about $1 billion if bullion prices don’t rebound.
Venezuela is trying to stave off a bond default in the wake of falling oil prices. The vast gold reserves may act as its savior during the economic turmoil. The country had 68% of its international reserves in bullion as of August, according to the World Gold Council. With the tumultuous oil prices, gold prices could play a crucial role in saving the country. In the graph below, you can see the relationship of gold to crude oil prices.
Gold futures traded on COMEX, a commodity division of the New York Mercantile Exchange, have lost .50% on a year-to-date basis. The last trading month, however, was profitable, and gold futures gained 3.4%.
For the past few days, gold has been in the price range of $1,165–$1,180 per ounce. Any surges may depend on the Fed’s decision to increase interest rates. Venezuela may also have its eyes on the Fed’s decision, as gold reserves may prove critically crucial. Gold futures have seen six out of ten down days. The prices are trading above the 100-day moving average price of $1,141 per ounce.
Tracking ETFs and miners
Leveraged ETFs such as the Direxion Daily Gold Miners Bull 3X ETF (NUGT) and the ProShares Ultra Silver ETF (AGQ) have fallen 60.7% and 5.4%, respectively, on a year-to-date basis. Mining companies such as Eldorado Gold (EGO), Goldcorp (GG), and Gold Fields (GFI) have also suffered on the same basis. Together, these three companies contribute 15.3% to the VanEck Vectors Gold Miners ETF (GDX).