Venezuela’s gold crisis has been well documented over the last decade. After bringing in new mining laws in 2000, gold excavation rates surged and continued to thrive until the country’s economic crisis. By 2013, the rate of gold being excavated dropped by 64%. Fast forward to 2019, and the economy and gold continue to be inextricably linked.
Financial analysts have long tied the price of gold to a country’s economic strength. Indeed, as noted by Daily FX, stability is a driver for gold prices. Because it acts as a stable base for currencies, times of turmoil tend to see the price of gold increase as governments hedge against financial uncertainty.
Using this guide on financial bubbles and flash crashes, we can look back over the last decade and see that gold prices were on the rise between 1999 and the financial crisis of 2011. With economic stability leading to buoyancy, a bullish market developed and prices soared. However, when the 2011 crash happened, gold lost its value.
A similar thing is now happening in Venezuela. In 2018, the bolivar went into hyperinflation which, in turn, sent the value of gold into a spin. Indeed, within months of the currency becoming unstable, the price per ounce of gold increased by 3.1 million percent. This change in value is all because gold and a country’s economic strength are intimately linked.
The Right Investments Can Counteract Hyperinflation
Today, despite sanctions, Venezuela is still in the midst of an economic crisis, and it’s now doing everything it can to offload gold. In March 2019, it shipped 29 tons of gold to the UEA to help provide financial liquidity for the import of basic goods. As gold supplies diminish, it will inevitably lead to further issues down the line. However, technology could help with this.
In discussing the Texas oil revolution, Daniel Lacalle points to the benefits of investment in new technology. Taking a central idea from his book The Energy World is Flat, the chief analyst said that new technology in the oil and gas industry has had a “disinflationary” effect. In essence, what he’s saying is that better tech leads to increased efficiency and more abundant supplies. From that, Lacalle has linked these innovations to improvements in Texas oil supplies and turning the US into a net exporter. The subsequent benefit of that is that the economy has improved.
While Venezuela is in a much weaker position than the US financially, the same principle could apply. If the government was to actively invest in geospatial technology, it could improve production and, in turn, boost the economy. By combining Global Positioning System (GPS) and Geographical Information System (GIS), this technology can accurately map the layout of a mine. As well as increasing the success rates with regards to finding gold, accurate mapping can reduce waste and make mining safer. The upshot is a more productive, more efficient industry.
Better Mining Conditions Can Lead to a Better Economy
More efficient mining would mean Venezuela could keep excavation rates high and avoid the issues it ran into back in 2013. From that, it would have more resources to export which, in turn, would improve GDP. However, beyond that, geospatial technology could have additional benefits. As well as creating new jobs, Mining Review Africa noted in 2013 that geospatial mapping can improve local air and water quality.
Because drilling is more targeted, the risks of contamination are decreased. When water and air quality are better, population dynamics change, and that serves as a catalyst for infrastructure and jobs. Essentially, by investing in technology and improving the gold mining industry, the benefits could be far-reaching. While that may not fully resolve the country’s economic crisis, it would certainly be a positive start for Venezuela.