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Ecuador Sends Gold Reserves to Goldman Sachs in Liquidity Hunt

By Nathan Gill
Jun 2, 2014
Bloomberg.com

Ecuador agreed to transfer more than half its gold reserves to Goldman Sachs Group Inc. for three years as the government seeks to bolster liquidity.

The central bank said it will send 466,000 ounces of gold to Goldman Sachs, worth about $580 million at current prices, and get the same amount back three years from now. In return, Ecuador will get “instruments of high security and liquidity” and expects to earn a profit of $16 million to $20 million over the term of the accord.

The deal comes as the South American country’s government, which defaulted on about $3.2 billion of bonds five years ago, seeks to cover a budget deficit forecast by the Finance Ministry to swell to a record $4.94 billion this year. President Rafael Correa said in April he also planned to sell about $700 million of foreign debt this year in the country’s first international bond sale since the 2008 and 2009 default.

“Gold that was not generating any returns in vaults, causing storage costs, now becomes a productive asset that will generate profits,” the central bank said in the statement. “These interventions in the gold market represent the beginning of a new and permanent strategy of active participation by the bank, through purchases, sales and financial operations, that will contribute to the creation of new financial investment opportunities.”

Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment.

The country’s gold reserves fell by $605 million, or 55%, to $493 million in the week ending May 23, according to a report on the central bank’s website.

Central Bank President Diego Martinez didn’t respond to requests made through the bank’s press office seeking more information on the transaction.

To contact the reporter on this story: Nathan Gill in Quito at [e-mail]

To contact the editors responsible for this story: Brendan Walsh at [e-mail] Bradley Keoun

http://www.bloomberg.com/news/2014-06-02/ecuador-sends-gold-reserves-to-goldman-sachs-in-liquidity-hunt.html