How to get $12 billion of gold to Venezuela

http://blogs.reuters.com/felix-salmon/2011/08/23/how-to-get-12-billion-of-gold-to-venezuela/

by pathik • 15 years ago

171 123 15 years ago

blogs.reuters.com

glymor• 15 years ago

He's moving the gold because:

* He's worried that sanctions etc could freeze it

* He want's to be able to sell it without being clear about it (so he can buy the next election or make a personal nest egg with it).

Venezuela's bonds moved 50 basis points on this so the markets are obviously worried that the gold's going to start evaporating once it's under his control.

rmoriz• 15 years ago

Rumors are that Chavez wants to confiscate/socialize the venezuelan gold industry => http://blogs.ft.com/beyond-brics/2011/08/20/venezuelas-gold-...

Foreign companies that would lose their mines would very likely try to get hands on the gold that's located outside of Venezuela (with a court order etc)...

pakitan• 15 years ago

The correct term is nationalization. As far as I'm aware, there have been many nationalized foreign companies in Venezuela but the owners are getting paid. Given that I haven't heard anyone complaining, the prices are probably fair. So, this is very far from confiscation.

sp3322• 15 years ago

50 basis points = 0.5% http://abstrusegoose.com/389

3pt141593• 15 years ago

50 basis points = 0.5 points, not 0.5%. Points are cumulative percent is multiplicative.

joelthelion• 15 years ago

Use bitcoins? :-p

epscylonb• 15 years ago

My first thought as well.

Bitcoin is often said to have many of the properties of gold, not least its scarcity.

But here is a clear example of how bitcoin trumps gold, people can move large amounts of bitcoin in a short amount of time with very little risk. Bitcoin users are already doing this.

http://blockexplorer.com/block/0000000000022043f9ea2c298f338...

Total BTC?: 416300.33

At todays bitcoin market value that is 4,605,201.67 USD.

Still some way off 12 billion I grant you, but astonishing considering gold has been used as currency for thousands of years and bitcoin is less than 3 years old.

dualogy2• 15 years ago

Not so astonishing! Multiply those 3 years times 1000s and you get from 4m to 12bn.

This would assume currency value stability over 1000s of years of course, not possible even over decades.

ceejayoz• 15 years ago

> But here is a clear example of how bitcoin trumps gold, people can move large amounts of bitcoin in a short amount of time with very little risk. Bitcoin users are already doing this.

I'd imagine that governments like the fact that moving their gold is hard, slow, and risky.

ars3• 15 years ago

If ever there was a clear example of why gold makes a terrible monetary base this was it.

And it seems to me that a lot of the reason for gold being worth a lot is countries just sitting on it. If they would sell it to people who would use it (for jewelry or active trading) the price would go down a lot.

And what is the point of just having lots of gold and never using it? It's just a big pile of metal, if it wasn't there would anyone notice the difference? (i.e. could I borrow it, then return it 100 years later? Would anyone notice?)

OstiaAntica2• 15 years ago

Actually, Chavez has already destroyed his fiat currency. What's a better alternative store of value than gold?

ars3• 15 years ago

Oil would work. It has a large and liquid market. And they have plenty of it.

3pt141593• 15 years ago

If everyone was using it for transactions there would be a much, much higher demand and you wouldn't need 40 planes worth for a similar amount of buying power.

Ultimately, energy should be currency, not gold, but it is still better than fiat.

fabiandesimone5• 15 years ago

As a Venezuelan, this is terrible news. Forget economic consequences for a minute.

The corruption levels in Venezuela are incredibly high. Is widely known that the Chavez government has been one of the most corrupt government in Venezuela history.

What do you think is going to happen to this gold when it gets to Venezuela? (If it ever gets there)

I mean, I don't know the dynamics of this, but which authority is going to weigh the incoming gold? Who are we supposed to trust when every institution in the country is in Chavez hands? They basically say what they are told.

Also, our Central Bank does not have the physical capacity to store that much gold. Chavez already offered the basement of the Presidential Palace :S (which I have been to and is as a regular basement can be).

What about the cost of moving that quantity of gold? They are already talking about 40 trips. Yeah, that's going to cost, 400 million according to the article. Money that could be very well spent in say, hospitals: http://www.noticias24.com/actualidad/noticia/302153/en-fotos... )

As for the cash reserves: they are going to Russian and Chinese banks. Sorry to those that might be offended, but personally I have as much trust in these governments as I have in mine.

We have an election in 2012. If Chavez looses (or if he evens runs... he might die from his cancer before that, dunno), that gold is going back. More gold will be lost along the way.

What about the cash reserves? The new government will have to deal with Russians and Chinese institutions under a different premise, because the new government will be or will try to be very close with the US. I think we can expect things to get a bit rough and a lot of gold will go unaccounted for.

Sad news for Venezuela, once again.

sek8• 15 years ago

Good points.

This could be a bad signal, gold is very handy when you need to get out of a country in political change.

Didn't had the Wife of the Tunisian Dictator a ton of gold?

hugh32• 15 years ago

In which case surely he'd keep it in Europe?

Or is this Venezuela's gold rather than Chavez's personal gold? In any case, I'm sure that Chavez, like most dictators, has a crapload of money carefully squirreled away in foreign countries. Attempting to steal Venezuela's own gold and then sneak out with all he can carry doesn't sound useful.

david9279• 15 years ago

Chavez government has been one of the most corrupt

Really? Venezuela should be a much richer country but was controlled by a cabal of wealthy families that siphoned the wealth off.

Since Chavez, the poverty rates are down and literacy is way up.

The gold move is a smart one. Control of actual gold bullion will be important as we go into these next tumultuous months.

fabiandesimone5• 15 years ago

Venezuela should be a much richer country but was controlled by a cabal of wealthy families that siphoned the wealth off

I have heard that argument before...many times. Is a very poor argument.

Chavez has been in power for 13 years with the highest oil prices in Venezuelan history. Most of that money went to their personal pockets. How do I know this you might ask?

It happens that it is LAW. You see, the Chavez government created a LAW that would allow them to set the national budget price, at the time was at 70$ I think (don't quote me on that) and any amount above that would go to a PERSONAL presidential account that Chavez controls and has no OBLIGATION to tell anyone what he is doing with that money.

Let me remain you that we spent several years with the prices above 100$ per barrel and that Venezuela produces about 2.5 million barrels of oil PER DAY. I'm not going to pretend the need to do the math here for the HN folks, but just in case, for illustration purposes that personal account would receive somewhere on the lines of...

75 million dollars a day.

Try to grasp how MASSIVE that amount is.

You see, when you talk about poverty and literacy I simply know that you have not been nowhere near Venezuela.

Venezuela is falling to pieces, structurally, morally, economically, etc. We wasted a decade that could have turn our country in to a super power.

OstiaAntica2• 15 years ago

Literacy is up only 2% in the past decade.

http://data.worldbank.org/indicator/SE.ADT.LITR.ZS/countries...

nikcub• 15 years ago

Venezuela is one of the last remaining socialist dictatorships in South America. If you look at the other countries who rid themselves of dictators and turned towards market democracy the growth rates have been staggering.

South America is full of resources and natural wealth, and should be a very wealthy economy. The only thing holding parts of the continent back is the class warfare and old marxist/socialist governments.

Look at how well Chile (a benchmark for modern western markets via Milton Friedman et al) and Argentina (for a time) recovered. That is what Venezuela should also look like. I have never heard anybody argue for the South American style of socialist dictatorships and against the reforms that have been demonstrated in the other, successful, nations of the region.

See 'The Miracle of Chile':

http://en.wikipedia.org/wiki/Miracle_of_Chile

ChuckMcM• 15 years ago

I'm surprised he doesn't talk with Brazil. I mean he could agree with Brazil to get the equivalent tonnage from Brazil and just trade ownership certificates. Tell the bank of england that its Brazil's gold now, and have the Brazilians roll up some bars from the southland.

It is an amazing challenge though to get that much 'value' through.

Alternatively he could trade it for diamonds and then transfer those?

sek8• 15 years ago

You can't eat gold, all this rant on gold is so stupid, the monetary value is merely historical. In modern economy only counts the real application of resources and nothing else. Nobody will ever introduce a new Gold standard, a resource is a bad idea for a currency. What if someone finds a gigantic Deposit or a way to cheaply produce Gold? The additional value over the real industrial utilization is a bubble, nothing else.

StrawberryFrog5• 15 years ago

> the monetary value is merely historical

In theory, yes. However, the all-time high price that one can get for gold today is actual and current.

sek8• 15 years ago

A real currency is widely accepted, gold is not. Gold is very unhandy, the article is about one example why.

david9279• 15 years ago

What if someone finds a gigantic Deposit

of paper? And starts printing off currency? What makes gold valuable is that it is scarce, we know with quite a bit of certainty how much is below and above the ground, and is has a background of this usage. As we are seeing with "quantitative easing," paper is not scarce.

sek8• 15 years ago

I the people lose trust in a country the currency goes down exactly because of this. This can also be a good thing, for example when the economy is not competitive and the government has always enough money to provide the basic needs. Not comparable to a resource.

Everybody thinks he knows about economics but does lack basic theories, i don't want explain in every discussion how inflation works.

PS: Please stop downvoting me just because you disagree.

dageshi• 15 years ago

People are not buying gold because they think it will become the basis of a new monetary system, they're buying it because it's one of the few assets that are small, portable can be easily and discreetly sold and which rises in value during economic uncertainty. The goal is to hold an asset which will survive the devaluation of currency and is no one else's liability and it is doing just that, right now.

roc• 15 years ago

Trick is, of the people who are buying gold, almost no-one is buying physical gold. So its physical properties are irrelevant.

It's almost entirely being bought either on speculation that it will continue to rise in price, or as a hedge against inflation. And for that purpose, they might as well be buying giant stone discs that lay beneath the ocean.

randallsquared2• 15 years ago

What if someone finds a gigantic Deposit or a way to cheaply produce Gold?

Ah, yes, the Fusion Codicil: http://bit.ly/oQOxIr

(man, linking to something with quotes in it is hard, here)

raldi• 15 years ago

http://www.google.com/search?q=%22fusion+codicil%22

Works for me. Un-percented quotation marks are not valid URL characters. What browser let you copy them out of the URL bar without escaping them?

illumin88• 15 years ago

It is truly painful to read some of the misinformed posts on economic issues here.

Here is all you need to know:

- Gold is money, and has been considered money by all civilizations on earth for thousands of years. - Gold does not decay, rust, degrade, or decompose in any way over time. - Gold cannot be printed, duplicated, or fabricated in any way. - Gold, because of it's unique color and atomic weight is almost impossible to imitate.

Gold is real money that holds it's value over time. It is not in a bubble. What is happening is that the bubble of fiat currency is deflating against gold. Gold holds it's value in a remarkable manner over time. You will find, for example, that a fine tailored men's suit has cost about one ounce of gold for hundreds of years.

When you figure out the fiat currency is the real "stupid" you will probably wish you had some gold. But, by then, it will probably be too late.

roel_v5• 15 years ago

"Gold is money, and has been considered money by all civilizations on earth for thousands of years."

Actually, no - the Inca's used textiles and animals for currency, and gold was used for ceremonial purposes (that last part iirc, it's been a few years since I was in Peru). The reason was that gold was plentiful for them, so its main reason for using it now and elsewhere didn't exist for them.

Apart from that, 'gold is money' doesn't even make sense. 'money' is something that has value, and 'value' is in the eye of the beholder. If you want to argue that gold has a longer historical track record as a holder of value than paper money or any other economic theory about gold, fine - but you sound like a crackpot gold bug, and if that is really the case, please take your intellectually dishonest nonsense elsewhere.

StavrosK• 15 years ago

Your comment is an instance where I wish I could see the number of upvotes, to gauge how many people corroborated this.

For lack of that, can someone comment as to how valid this is? It sounds valid, I would just appreciate another data point.

onemoreact4• 15 years ago

We can actually create gold today. Granted crating a 'tiny' amount of radioative gold is not particularly sensible but it's still possible.

crxpandion2• 15 years ago

I like to think about money this way: when the world ends and we are left in some of post-apocalyptic zombie epic society do you think that gold will still be valuable? Gold cannot feed you, protect you, or help you survive in any way. Besides being very resistant to corrosion and very malleable, gold really doesn't have that many special properties.

Really the only reason gold is considered to be so valuable is because its rare. But if you really want to talk about money, then goods and materials have far more intrinsic value than gold.

In fact, your post is totally wrong. Most currency was very nonstandard, with all sorts of alloys and rare metals being used.

dmm• 15 years ago

> all civilizations on earth

Not all. Silver was money in China. A significant fact because for several centuries European nations wanted Chinese goods but China wanted nothing from western barbarians but their silver.

sek8• 15 years ago

> Gold is money, and has been considered money by all civilizations on earth for thousands of years.

That is the historical value i was talking about, or how it is seen as money today? In which civilization can you buy your groceries with it?

I never said fiat currency is there to invest, if you put your money in something that costs just to have it and you can't do anything with it then do it. For the unrealistic case that there comes a new gold based currency than you have no advantage over anyone else.

I call this stupid and misinformed.

brown9-2• 15 years ago

> Gold holds it's value in a remarkable manner over time. You will find, for example, that a fine tailored men's suit has cost about one ounce of gold for hundreds of years.

Can you provide a citation for this?

Wouldn't you find the same thing to be true of other types of resource/materials that had no correlation to the manufacturer of suits - that their monetary value moves in the same direction, likely due to the overall level of inflation in the economy?

jahmed• 15 years ago

Gold is not money. Gold is an asset. Dollars, Yen, Euros are money. Assets can be converted to money but assets are not money. Money is something that is commonly and readily accepted in exchange for goods or services.

Can gold be money? Sure if everyone accepted it but shells, cool rocks or toe nail clippings can be money too.

chopsueyar2• 15 years ago

If someone finds a way to cheaply produce Gold, most of our problems would be solved.

Once humanakind has the ability to cheaply produce elements, we can start building food replicators.

hugh32• 15 years ago

While we're talking about fantasy technology anyway, creating atoms of an element is a very different problem to rearranging existing atoms into food.

tokenadult• 15 years ago

Page 6 of this .PDF document

http://pubs.usgs.gov/of/2000/of00-389/of00-389.pdf

has a Figure 6 that shows a 20th Century trend line (with informative commentary) and a fluctuation graph for the price of gold in constant (inflation-adjusted) United States dollars. Other sources on "gold in constant dollars" that one can find on Google show how the price of gold has been bouncing up and down in relation to the United States dollar, usually with trend lines that only cover very recent years (when the trend has mostly been up for gold in relation to the dollar). I have a friend who invested all his personal savings in gold around 1980, when gold was last regarded as a reliable inflation hedge, and he lost a lot of money during the following decade as he had to sell off gold at declining value when he needed cash.

This comment on the market not quite a decade ago,

http://old.nationalreview.com/kudlow/kudlow200312150909.asp

also shows that gold can bounce up and down in price, relative to the dollar. Any investment could be a safe investment if you perfectly predict the future, and for the last few years gold has looked like a very good investment, but I wouldn't count on any investment being a sure thing over the long term. "The market can remain irrational longer than you can remain solvent" is still the best advice.

chollida12• 15 years ago

> It would take a little while, but eventually the gold would start trickling in: if you’re willing to pay a constant premium of 2% over the market price for a good, you can be sure that the good in question will ultimately find its way to your door

I'm not sure about the authors qualifications but why would I ever risk bringing a bar of gold to a Venezualan bank to earn 2% on my money?

I can get better rates in the bond market with much less risk.

Now if your willing to pay a 50% premium the I can see something working here

roel_v5• 15 years ago

You get 2% per year on the bond market, but you get 2% instantly when exchanging in the proposed fashion. If you could traffic enough gold, let's say because you are a pilot and fly in and out of Venezuela 5 times per week, you can make a bundle on a deal like this. (make a quick excel sheet - you can double your money in 6 weeks when you can make an exchange like this 5 times a week! Beat that with bonds!)

chollida12• 15 years ago

Sure, but you're discarding all the other costs associated with bringing in gold, plane, fuel, security. These will eat up all of your profit.

As the article stated, 500 million for insurance on 12 billion in gold is allready over the 2% your going to earn. And that's before you factor in any security, borrowing/carrying costs, transportation.

I have done the numbers and you end up in the red on each and every transaction you do:(

usedtolurk2• 15 years ago

Actually, the logistics (which the article focuses on) isn't as unique a problem as one might think. Australia alone produces about 300 tons of gold each year and I would expect most of it is exported.

roel_v5• 15 years ago

But not in a single shipment. I don't know how much ships and airplanes leave Australia each day, but let's say it's 1000 (I guess the 2 or 3 main airports alone would do that, but let's say) and if each would take a kilo of gold with them, all produced gold can be send abroad. That's a very different situation from what Chavez apparently is trying to do.

TillE• 15 years ago

I don't understand why this is such a big deal. The solution is right there in the article - send a few ships from the navy, like the Spanish treasure fleets of old.

If England doesn't want armed Venezuelan ships in their waters, use a freighter and escort it all the way back. Divide up the cargo between the ships if you're really paranoid.

The author is inventing a problem where none exists. Transporting large amounts of heavy cargo overseas is a solved problem.

usedtolurk2• 15 years ago

Just saying that this is not a new problem and there are tested procedures for moving that sort of quantity of gold around the world. (The article seems to imply that a "new" solution was needed).

For example, swapping physical metal in one location for physical metal in another location is common practice among banks and large investors. They could swap metal to various other locations around the world before shipping it back home bit by bit.

The main reason large orders are split into smaller shipments is the risk (and insurance costs). The Venezuelan government may decide that it's navy can provide better insurance than a commercial insurer, in which case it might make sense to do it all in one shipment (which would be quite unusual).

cpeterso• 15 years ago

Facing a similar problem, the Pentagon used 21 C-130 Hercules cargo planes to haul $12B to Iraq. Admittedly, the Pentagon only had to ship pallets of $100 bills, not gold bars.

Surprisingly, federal auditors are now suggesting that some or all of the cash may have been stolen, not just mislaid in an accounting error. U.S. officials claim often didn't have time or staff to keep strict financial controls, so millions of dollars were stuffed in gunnysacks and hauled on pickups to Iraqi agencies or contractors.

http://articles.latimes.com/2011/jun/13/world/la-fg-missing-...

kragen2• 15 years ago

Charles de Gaulle did something similar in 1965, but he was importing gold from the US, not from England.

Argentina had a similar problem in 1946: its central bank "reserves" were actually held in trust by the Bank of England, in large part as a result of Argentina feeding England through the war, and England (as I understand it) couldn't come up with the cash. The eventual solution was to exchange the reserves for the British-owned railways of Argentina, which unfortunately couldn't be exported in trade to import the things Argentina needed.

I could be naïve, but I think keeping your central bank's reserves overseas in a possibly hostile country is a dumb idea. Chávez doesn't seem to have done a very good job at New-Dealing his country, but he does get some things right.

How to get $12 billion of gold to Venezuela

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