Argentinians are buying more gold than ever, in light of the recent economic crisis that has pushed the economy to the brink of collapse. Argentina has tried to print its way out of trouble but the amount of pesos has increased by 38% in the past year, and that has pushed the Argentine inflation rate to 26% per year, the highest rate in the Western Hemisphere. Double digit inflation is expected for the rest of the year despite government decreed price freezes across the board.
In such an environment, it makes tremendous sense to simply exchange value eroding pesos for other more stable currencies, but the government is taking steps to prevent that. President Cristina Fernandez has imposed a ban on purchasing US dollars, which has forced those wishing to preserve their wealth into buying gold. But even gold is hard to get a hold off in the South American country, with a ban imposed on the purchase of certified .9999 purity gold. Banco de la Ciudad de Buenos Aires is the only bank in the country offering investment grade gold, but it comes at a price. The purity is an unorthodox .9996 which makes it difficult to trade on international markets. There is also a 35% gap between the purchase and selling price – which is a steep premium to pay. The premium makes sense when you consider that the US dollar exchange rate is officially around 5 pesos but unofficially almost 8 pesos now, therefore pushing the gold price up.
Even with all these restrictions, Banco Ciudad is facing a gold shortage with scrap supply not meeting the frenzied demand by worried investors, and has led them to request direct supply from mining companies in the region. Buying gold at these crazy premiums is almost enough to make us cry for Argentina, but at this stage even that is better than outright confiscation.