Argentina’s cash-strapped central bank has around two million troy ounces of gold in its vaults, valued at around $4.5 billion. Or at least it did.
Where is Argentina’s gold?
This is a question that began doing the rounds, particularly in Argentina’s financial media, a few weeks ago. The Secretary General of the Banking Association and deputy, Sergio Palazzo, had just made a FOIA request to the Central Bank of the Republic of Argentina (BCRA) asking the bank to confirm whether “operations to send gold bullion abroad had taken place during the month of June.” More specifically, he asked if transfers of gold had been made on June 7th and 28th using the Lumil transport company and British Airways.
Palazzo also asked the BCRA to provide details of the amounts involved, their ultimate destination, and the officials and administrative procedures behind the operations. The BCRA had 30 days to respond. Three weeks on, it still hasn’t done so. But on July 19, Argentina’s Minister of Economy (and former JP Morgan Chase and Deutsche Bank banker) Luis Caputo confirmed that the operation had indeed taken place. He even tried to present it as a shrewd financial move, rather than what it really was — the pawning of part of the nation’s gold, initially under the cover of darkness:
“It is a very positive move, because today you have gold in the BCRA that is like a piece of property that cannot be used for anything. If you have it abroad, you can generate returns. It is much better to have it stored outside, where they pay you something for it.”
As El País reported days later, the words implied that the purpose of the shipment was to deposit the gold abroad and earn interest, presumably on carry trades — in which case, the newspaper noted, the yield is very low. Some economists have warned that the logistics of the transfer, including the transport costs and insurance payments, render the operation pointless — unless, of course, it is serving a different purpose. Days later, Argentina’s President Javier Milei implied that the gold was actually needed as collateral for a “bridge loan”. From El País:
The president said that Argentina already has the dollars available to pay next January the maturity of interest on foreign debt for some 1.6 billion dollars. In addition, he stated that a Repo has been agreed to pay capital owed for about 3,000 million dollars.
Gold for Debt?
For the moment, it is far from clear what the shipped gold is being used for. Meanwhile, the shipments of Argentina’s gold bars have continued. On July 29, La Politica Online reported that “Caputo had sent another shipment of gold to London”, then on to Basel, all with the ostensible aim of securing a $1 billion repo loan and rebuilding the central bank’s currency reserves:
The scene repeats itself: late at night, a cash transport service loads gold bars onto a commercial plane bound for London. The final destination of the metal is Switzerland where the Bank of International Settlements will offer it as a pledge to investors willing to put up fresh funds…
Once again the government is going to send gold from the Central Bank’s reserves as reinforcement for a repo loan of about $1 billion through Basel… In such an operation, a financial institution sells an asset to an investor with the commitment to buy it on a certain date at a certain [NC: as in, higher] price.
“It is a short and expensive loan,” a source from the financial sector told LPO, adding that “it shows the level of distrust in Argentina, in that it has to pawn grandma’s jewellery to get a few dollars of debt.”
What’s more, sending that gold across the Atlantic puts it at risk of seizure by creditors. As readers may recall, London — and more broadly, Europe — are hardly the safest places to store gold reserves and other sovereign assets these days. In 2019, the UK government impounded Venezuela’s roughly $2 billion of gold deposits stored at the Bank of England after “derecognising” the Venezuelan President Nicolas Maduro in favour of the US- self-appointed Juan Guaidó. Even after Venezuela’s leading opposition parties voted to oust Guaidó in 2023, the UK continues to hold on to Venezuela’s gold deposits.
With Argentina facing numerous lawsuits over unpaid bills and debts, including one concerning the former Cristina Fernández de Kirchner government’s expropriation of roughly half of national energy company YPF, the risk of part or all of Argentina’s gold being seized is not negligible, as Palazzo himself warns:
“The gold in transit may be seized by any judge who eventually orders a seizure for any of the cases Argentina has pending abroad. It’s an unnecessary risk being run, and [the central bank] should clarify to us Argentines the reason for this transaction, whether it is to exchange the gold for foreign currency in another country, or whether it is a credit operation, or whether it is a purchase and repurchase operation with the International Payment Bank.
Why Now?
Market analysts believe that the government needs this repo in order to cover the loss of the BCRA’s currenty reserves, which Milei’s economic team have burnt through in a (likely vain) attempt to keep the dollar in check. The government is desperate for fresh money from the IMF while struggling to service the roughly $40 billion it still owes the Fund. According to an article in Argentina’s largest newspaper Clarín, Milei is hoping that a Donald Trump victory in the US elections will allow him to expand Argentina’s debt with the IMF.
Libertarian Deputy José Luis Espert estimated that a “minimum” of US$ 10,000 million of additional net reserves is needed to accelerate the exit from the current crisis. Otherwise, he explained, the path will be “more gradual.”
However, the Republican candidate’s adviser, Mauricio Claver-Carone, last week criticized the Milei government for “spending reserves” and warned that it is an “illusion” to expect more money from the organization. Thus, without clear signals from Washington, the Minister of Economy, Luis Caputo, is pursuing other ways of creating a financial “cushion”.
The profligate use of the BCRA’s already limited reserves by Milei’s economic team to contain the rise of the dollar in relation to the peso has left the central bank with precious few tools left in its box. Its rainy day funds have been compromised by the government’s efforts to reduce the exchange rate gap between the US dollar and the Argentine peso — efforts that are likely to prove futile and short-lived anyway. In other words, more of Argentina’s gold is likely to be heading overseas in the coming months…
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Nick Corbishley 