Two weeks ago, shortly before noting that Venezuela's CDS is now at the same level where Greece was 3 months before its default, we wrote that as a result of a recently implemented gold swap with Deutsche Bank, Venezuela was preparing to liquidate its remaining gold holdings (ostensibly temporarily, if only on paper) in order to pay down its upcoming debt maturities.
Authored by Pascal-Emmanuel Gobry, originally posted at The Week,
Venezuela's economy is collapsing. The country has topped Bloomberg's "Economic Misery Index," which takes into account several economic measures, for two years. Runaway inflation and high unemployment are plaguing the country.
The country's government is taking emergency measures, including increasing the price of gas (which is still among the cheapest in the world) and devaluing the currency to tackle runaway inflation.
Maybe because between the specter of defaulting in under three months, the threat of handing over its gold to Deutsche Bank, or the reality of rampant hyperinflation and a collapsing society, the already crushed population of Venezuela did not have enough things to worry about, moments ago Venezuela's Nicolas Maduro unveiled a double whammy of "shock and awe" when the socialist president not only announced the latest devaluation of the country's official currency, but also presented his countrymen with the first gasoline price increase since 1996.
In addition to being a hyperinflating, socialist banana republic with a devastated economy Venezuela has another problem: debt, of which it has some $70 billion with $9.5 billion due this year. It also has $15.4 billion in foreign reserves, of which two-thirds or around $10 billion, are held in gold bars, which as we said last week, "limits President Nicolas Maduro's government's ability to quickly mobilize hard currency for imports or debt service."
For the past two weeks recurring flashing red headlines of an agreement, or at least a meeting, between Russia and Saudi Arabia - the world's two largest oil producers - have led to aggressive short-covering rallies in oil on just as recurring hopes that the Saudi strategy of flooding the market with excess supply (by its own calculations as much as 3 million barrels daily) adopted during the 2014 Thanksgiving Day OPEC meeting, will come to an end.