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Forty-Three Tons of Gold Shore Up Crumbling Bolivian Reserves

Forty-Three Tons of Gold Shore Up Crumbling Bolivian Reserves

Bolivia’s long-term bet on gold is helping prop up its bonds, even as a delayed election stokes social unrest and the Covid-19 pandemic rips through the nation.

Bonds due in 2028 have risen 13 cents to 88.6 cents on the U.S. dollar from an April low, despite losses in the past week as supporters of ousted former President Evo Morales blocked roads across the country to demand fair elections.

Forty-Three Tons of Gold Shore Up Crumbling Bolivian Reserves

Some investors are looking beyond the headlines, concentrating on the recent rally in foreign-currency reserves and on optimism the October election will help stabilize the country. About 43 tons of gold held by the central bank has soared in value as the price of the precious metal rose to a record this month. Gold now represents about 42% of reserves, far higher than any other major central bank in Latin America and compensating for a drop in foreign currency holdings.

“A large part of the reserves are in gold, so that has appreciated to the point that it netted out the negative impact that they had in the beginning of the year,” said Filipe Gruppelli Carvalho, a Washington DC-based associate at Eurasia Group.

Forty-Three Tons of Gold Shore Up Crumbling Bolivian Reserves

The cost of an ounce of gold has climbed 26% to $1,986 since the end of March, pushing the value of Bolivia’s holdings of the precious metal to $2.81 billion as of Aug. 7 from $2.09 billion at the end of last year. That increased total reserves to $6.68 billion from $6.47 billion, according to data from the central bank.

Rating Downgrades

Credit rating companies S&P Global Ratings and Moody’s Investors Service both downgraded Bolivia earlier this year on concern over tumbling foreign reserve buffers, rising fiscal needs and slumping oil prices. More than 103,000 people have also tested positive for the coronavirus in Bolivia, with deaths are approaching 4,200.

Still, there is optimism that the election can restore stability. The first round of voting is scheduled for Oct. 18, almost a year after a controversial election led to mass protests amid allegations of voter fraud. Morales stepped down, fled the country and said he was victim of a coup, while a provisional government took power.

“Bolivians faced a very recent threat that a president could try to become a ‘life president,’ and therefore the present situation where there will be an election in due course is less of a threat than that situation previously,” said Carl Shepherd, a money manager at Newton Investment Management Ltd. in London.

The government has postponed the rerun of the election from May 3 to between June 7 and Sept. 6, and then again to Oct. 18. President Jeanine Anez, a senator who took power after Morales quit, is one of the three front-runners in this year’s vote.

“I haven’t seen anything as of yet which would be a strong enough signal to make me believe an election won’t take place or that the country can’t afford to meet its debt obligations,” Shepherd said.

©2020 Bloomberg L.P.