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Gold Spikes on Venezuela's Deal With World's 'Biggest Pawnbroker'

By    |   Tuesday, 28 April 2015 07:07 AM

Gold was steady Tuesday after surging Monday after Venezuela's central bank converted part of its gold reserves into at least $1 billion in cash through a swap with Citibank

Spot gold was unchanged on the day at $1,201.12 an ounce early Tuesday. It jumped nearly 2 percent in the previous session, when it hit its highest level in a week at $1,207.01.

U.S. gold futures for June delivery were down $2.90 at $1,200.20 an ounce.

Meanwhile, Venezuela's deal will make more foreign currency available to President Nicolas Maduro's socialist government as the OPEC nation struggles with soaring consumer prices, chronic shortages and a shrinking economy worsened by low oil prices, Reuters reported.

Daily newspaper El Nacional said the deal was for $1 billion and was struck with Citibank, which is owned by Citigroup Co.

Former central bank director Jose Guerra and economist Asdrubal Oliveros of Caracas-based consultancy Ecoanalitica said in separate interviews that the operation had been carried out. The central bank did not respond to a request for comments. A Citibank official said the company had no comment.

"He had to pawn their gold. That's what they've done. They can buy it back. They have rights of first refusal," Dennis Gartman, publisher of The Gartman Letter, told CNBC. "They went to the biggest pawnbroker of gold — Citibank."

Meanwhile, a source at the central bank told Reuters last month it would provide 1.4 million troy ounces of gold in exchange for cash. Venezuela would have to pay interest on the funds, but the bank would most likely be able to maintain the gold as part of its foreign currency reserves.

Most of Venezuela's foreign reserves are held in gold after late socialist leader Hugo Chavez began moving central bank assets away from the dollar in the wake of the 2007-2009 global financial crisis.

Meanwhile, in the physical markets, demand eased on Tuesday as the price neared the key $1,200 level.

"Buyers don't want to commit too much for physical gold at these prices," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.

"There is a lot of intraday volatility in gold and silver but the overall situation remains negative," ABN Amro analyst Georgette Boele said. "We have a bit more U.S. data in coming weeks and if that continues to disappoint, gold could see some modest support."

Recent sluggish economic data from the United States led the market to expect the Fed will probably not act until later in the year.

The Fed's two-day meeting kicks off on Tuesday, with a statement scheduled for release on Wednesday.

Interest rates at rock-bottom levels have benefited gold during the years after the 2008-2009 financial crisis as the metal does not bear any interest. Conversely, a rate hike could dent demand for bullion as investors' appetite for non-yielding assets diminish.

Traders were also monitoring debt talks in Greece after Prime Minister Alexis Tsipras reshuffled his team handling talks with European and IMF lenders, a move seen as a step closer to securing fresh funding.

Options-related buying also buoyed prices on Monday as U.S. May options expired at the end of the day with relatively heavy open interest at the $1,200 strike price, traders said.

China's gold imports from Hong Kong dipped to their lowest level in seven months in March, data showed on Tuesday.

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.44 percent to 739.07 tonnes on Monday, the first decline in two weeks.

(Reuters contributed to this article).

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Gold was steady Tuesday after MOnday;s 2 percenbt gain as the dollar edged lower ahead of a U.S. Federal Reserve policy meeting that could provide a steer on when interest rates will rise.
gold, citigroup, venezuela, citigroup
Tuesday, 28 April 2015 07:07 AM
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