Benn Steil


A graphical take on geoeconomic issues, with links to the news and expert commentary.

Gold Supply and Demand

by Wednesday, December 23, 2009


Central banks have been consistent suppliers to the gold market, at least up until the second quarter of 2009, when they became a source of demand. India bought a substantial 200 tons, illustrated by the red bar on the far right of the above figure, from the IMF in November. Russia, Sri Lanka, and Mauritius have also been buyers of late. Yet even if the rebuilding of central bank gold stocks turns out to be a long-term trend, in the short run the gold market is much more likely to be driven by volatile private investment demand, which jumped from only 8% of demand in the third quarter of 2008 to 86% in the first quarter of 2009 (see the orange block on the right of the figure). Investment demand is in part facilitated by exchange traded funds (ETFs) such as the SPDR Gold Shares, which has bought a massive 353 tons of gold since the beginning of 2009. Read more »

Venezuela’s Risk Unhinged

by Thursday, December 17, 2009


The credit risk of oil exporting countries such as Venezuela and Russia tends to move with the price of oil. As a country’s oil export revenue improves, so does its ability to pay its debts. Recently, however, Venezuela’s CDS spreads have increased even while the price of oil has been stable. The market’s perception of an increased risk of default coincides with the Venezuelan government’s move to close banks representing 8% of the country’s deposits. On Tuesday December 15th the Venezuelan National Assembly passed a law increasing depositors’ insurance in an effort to prevent a run on the banks. Problems in the financial sector have become the primary driver of Venezuelan sovereign credit risk. Read more »

Eurozone Sovereign Risk

by Wednesday, December 9, 2009


Fitch Ratings downgrade of Greek government debt has raised concerns about sovereign default risk. Within the Eurozone these concerns are particularly relevant because countries cannot print money to buy their own debt. These charts demonstrate a strong link between high deficits and high credit default swap spreads (CDS) – the market’s view of sovereign risk – and a very weak link between CDS spreads and overall debt levels. For example, although Ireland’s debt level is lower than Italy’s, Ireland, with a higher deficit, has a larger CDS spread. Investors fear deficits more than debt levels because deficits test the market’s willingness to finance a deteriorating balance sheet, while high but stable debt levels do not. Read more »