With A Venezuela Default Looming, This Is What A BofA Banker Wanted To Look At First

With a 66% chance of default/devaluation implied by the Venezuelan credit market, BofA economist Francisco Roriguez sprung an unusual question on the struggling socialist nation’s central bank – Can you show me your gold?

As Bloomberg reports, the answer was “yes”…

He’d been itching to take a peek for years and now was the time to ask. With the government’s bonds sinking toward prices that indicate investors are bracing for the possibility of default, the country’s $15 billion of gold bars are crucial to ensuring debt payments are met.

His first impression once inside the vaults? Those bars don’t take up a lot of room.

“You picture that amount of money requiring a lot of space when, in reality, it all fits in five small cells that were not even full to the top,” Rodriguez, a Venezuela native who covers Andean economies for Bank of America Corp. in New York, said in a telephone interview yesterday.

He said he started counting frantically in his head, summing up figures scrawled out on signs near each pile of the metal. By his quick math, the gold was all there.

At least they have all their gold thanks to Chavez’ repatriation, which is more than can be said about Germany.

Gold accounts for about 71 percent of Venezuela’s $21.4 billion of foreign reserves, according to the World Gold Council. About $13 billion of the gold is held at the central bank in downtown Caracas, with another $2 billion at the Bank of England, according to Rodriguez. Those gold assets have grown in importance as Venezuela’s overall foreign reserves plunged 34 percent in the past five years, the result largely of a drain of its more liquid assets.

The central bank didn’t reply to an e-mail seeking comment on the meeting. In a Sept. 23 note to clients, Rodriguez said the “rare” look at the gold was “largely symbolic yet reassuring.”

“It’s not that the majority of the people doubt that the gold is there,” he said by phone. “But it’s one of these things that linger, something that’s nagging you and makes you wonder: What if it’s not?”