Gold attracts: people pay them in Venezuelan El Dorado, Czech National Bank also holds a record volume
Gold represents a safe and valuable asset in uncertain times. It's well known in Venezuela's El Dorado, where it's used to pay for water and other everyday purchases, as well as in central banks around the world. For example, the Czech National Bank currently has over 60 tons of gold in its reserves, the most in its history to date.
Countless enthusiasts, longing to get rich, have dreamt about the legendary El Dorado. It was supposed to be a city near the imagined Lake Parime, where, according to legends, local Indian chiefs washed off the gold dust that they were ritually sprinkled with. The act was supposed to symbolise the enormous presence of this precious metal in the surroundings - there was supposedly so much of it that it could be thrown into the wind.
Gold as a common currency
You can find a similarly named town in modern-day eastern Venezuela. Locals instead of money or credit cards carry gold grains to stores, which are used by sellers as a currency for everyday purchases. While this town carries the name of the legendary city of immense wealth, most of its inhabitants live in poverty.
"Gold is a blessing that allows us to buy what we want, but it requires hard work,"
quoted forty-eight-year-old José Tobiase Tranquini, who is involved in gold mining, Czech News Agency. He reportedly pays 80 to 100 dollars for a gram of gold dust in the store, which is the equivalent of 1850 to 2300 crowns. However, as Tranquini explains, gold is not a completely stable source of income.
"One day down there might be without profit. Some lucky ones can find up to a kilo, but I've been here a long time and haven't had such luck yet,"
he states.
The reason most local residents do not sell the precious metal at exchange offices, of which there are dozens in the city, is the fact that the Venezuelan currency has lost up to half its value over the last year. On the contrary, gold does not lose in value.
Omnipresent uncertainty and danger
The inhabitants of El Dorado have only limited access to banking services. They could sell their gold at exchange offices, of which there are dozens in the city. However, most of the residents don't do this. Unlike the Venezuelan currency, which has lost half its value in the past year, gold does not lose value.
El Dorado, which has nearly 5,000 inhabitants, lies in an area with great mineral wealth, where illegal mining is ubiquitous. Criminal gangs and guerrilla groups are also omnipresent, demanding extortion money or directly organizing illegal mining. Between 2016 and 2020, over 200 people reportedly died in massacres here.
The road from El Dorado to the administrative center of Tumerema is lined with many mills that process sand to capture gold particles. It takes four hours to process one ton of sand. The result is roughly one gram of gold per day's work.
"We use it to buy food and what is needed for the mill,"
said one of the workers.
Central banks are strengthening their gold reserves
It is well known among people working in finance that gold is an asset that certainly does not lose its value.
Over the past three years, global central banks have added over a thousand tons to their reserves. Compared to the average for the period from 2010 to 2021, they have increased at more than twice the pace.
And according to a new survey by the World Gold Council, there will be even more this year. A record 43 percent of survey participants estimated that the gold reserves held directly by their institutions would increase. None of them believe that the gold reserves held by their own monetary authority will decrease.
Reasons for holding gold
Central banks buy gold to diversify their reserves, which are typically primarily comprised of dollar, or possibly euro, assets. The Czech National Bank has been acquiring gold since 2023, currently holding over 64 tons. This is the most in its history. The gold in reserves is not all physically stored in its buildings, only part of it is. Most of it is abroad, for example in the vaults of the British Central Bank.
The Czech National Bank claims that its analyses have shown that if it holds approximately 100 tons of gold in its foreign exchange reserves, the volatility of its economic result will decrease. In practice, this means that the economic result will be less prone to rapid changes or fluctuations in financial markets.
The second reason for holding central gold is geopolitical. It is driven by an effort to limit the impact of political risks, such as the Western sanction regime, which led to the freezing of a significant portion of Russian foreign exchange reserves after Putin's regime decided to occupy its western neighbor.
Gold is worth holding for both small savers and large banking institutions. This is especially true in uncertain times when we encounter many different risks.
Sources: original text, CNB, CTK, AFP, Wikipedia, Investicniweb.cz
