

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

======
fabiandesimone
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...](http://www.noticias24.com/actualidad/noticia/302153/en-fotos-asi-se-
encuentra-la-infraestructura-del-hospital-vargas/) )

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.

~~~
david927
_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.

~~~
nikcub
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>

~~~
forinti
I didn't know there were other socialist dictatorships in South America. We've
had many (right-wing) military dictatorships though.

I don't particularly like him, but I think it was inevitable that someone like
him would show up given the history of economic inequality in the country. You
have to realise that you can only tell people it's their fault for being poor
for so long before they react.

~~~
fabiandesimone
Yet he tells those same people that the current government faults are cause by
the previous governments. Funny since he has been in power for 13 years.

Current problems in Venezuela are the responsibility of this government.

I specially like when they says things like the fact that there are teenagers
girls aged say 17, getting pregnant because of the lack of education in our
school system. And yet nobody seems to realize that a 17 year old girl was 4
when Chavez got to power.

I tell you, the things us Venezuelans need to hear everyday... it makes you
want to cry.

Incompetence at its finest.

------
glymor
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
Rumors are that Chavez wants to confiscate/socialize the venezuelan gold
industry => [http://blogs.ft.com/beyond-brics/2011/08/20/venezuelas-
gold-...](http://blogs.ft.com/beyond-brics/2011/08/20/venezuelas-gold-
reserves-no-place-to-hide-from-chavez/)

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
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.

~~~
losvedir
That is so far from my general impression of the matter, I had to do some news
searches to make sure I wasn't taking crazy pills. Fortunately, it seems I
wasn't. "Companies are very afraid."[1] Here[2] we have a company whose oil
rigs were " _nationalized_ " because they refused to do more work until they
were paid the $49 million it was owed. Another article [3] indicates that
Exxon-Mobil and Conoco-Philips _might_ get paid for their assets __four
__years after nationalization.

[1]
[http://www.washingtontimes.com/news/2009/may/12/nationalizat...](http://www.washingtontimes.com/news/2009/may/12/nationalization-
continuing/)

[2] [http://www.reuters.com/article/2010/06/24/us-venezuela-
natio...](http://www.reuters.com/article/2010/06/24/us-venezuela-
nationalizations-idUSTRE65N0UM20100624)

[3]
[http://www.stockmarketsreview.com/extras/venezuela_to_compen...](http://www.stockmarketsreview.com/extras/venezuela_to_compensate_american_oil_companies_for_nationalization_20110805_159386/)

------
ars
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?)

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

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

~~~
adammichaelc
How would you store oil if you wanted to actually have possession of the
asset? Barrels of oil in the basement seems pretty unreasonable.

~~~
ars
The same way you store gold: You pay someone to store it for you. It's bigger
so it's harder to store, but it's also harder to steal, so it needs less
guarding.

I'm not suggesting it as currency, just if you need something to back your
currency oil works a lot better than gold.

------
cpeterso
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-...](http://articles.latimes.com/2011/jun/13/world/la-fg-missing-
billions-20110613)

------
kragen
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.

------
usedtolurk
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_v
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
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.

~~~
marshray
Ordinarily, you'd want insurance on such a shipment. Even if you sent the
navy, getting insurance for the transport between the bank vault and the armed
ships could be an issue.

------
chollida1
> 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_v
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!)

~~~
chollida1
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:(

~~~
roel_v
That's not the point, you said 'I can get 2% on bonds' which is a completely
nonsense comparison, that's what I was saying. You confused a 2% per year
yield with a 2% per transaction yield.

And the hypothetical pilot that I used as an example doesn't have to pay any
costs - he just puts a gold bar in his suitcase. With gold prices of 33k€ per
kilo, he can (hypothetically) put a kilo in his luggage and make 660€ on each
transaction, or start with whatever initial amount he can scrape together and
double his money in 7 weeks.

(yes there are probably regulations on what pilots can do when on duty, and
customs regulations etc, my point is that there are many people who can
externalize the costs you mention and they can make a handsome profit. If I'm
a sailor on a cargo ship, it would be easy to take 10 kg of gold and make 6600
euros on a shipment. Split that half way with whoever bankrolls it, and it's
still a great ROI).

------
sek
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.

~~~
illumin8
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_v
"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.

~~~
illumin8
The Incas had vaults and palaces full of gold. Just because the peasants of
Inca times couldn't afford any, and bartered with textiles and animals,
doesn't mean the gold wasn't valued by the ruling class.

Please take your intellectually dishonest opinion somewhere else. The fact is
that gold can be converted into any currency in the world, in any country in
the world. I can walk into a bank in Zimbabwe with a gold eagle and walk out
with several $trillion Zimbabwe dollars in fiat currency.

As we speak, Gold just reached $1900 USD an ounce today. Which would you
rather have stuck in a safe back in 2009? A gold eagle, or a $1000 in US
currency?

~~~
roel_v
Inca rulers and the upper class used gold for decoration and to make things
like tableware from - the point of this discussion is whether it was used as
currency, which it wasn't. How are you going to call something a currency when
it's only hanging on the wall of the upper 2% of society? I'm not sure what
point you're trying to make, but you said that gold was used by all societies
of the last 1000's of years as a currency, but it flat out _isn't_. _Most_
societies, yes, but not all - and that's important, because it shows that in
places where there is a relative abundance of gold, it's not good as a
currency (the non-use of gold in Inca times was not solely because of high
supply, I'm not interested in arguing details on Inca culture and economics
here because frankly I don't know much more about it than what a couple of
tour guides told me).

 _Anyway_ , let's go back to 2007. A house in Phoenix that sold for 250k in
2004 just reached one million. Which would you have rather bought back in
2004? That house, or a gold eagle?

My point - it's easy to make a 'case' with perfect hindsight. There are
several drivers to the current high price of gold; people diversifying their
portfolios into precious metals, Chinese millionaire who have limited options
for storing value, increasing demand from emerging markets for jewelry. That's
not the point; the point is that you are claiming that gold has 'intrinsic'
value ('Gold is real money that holds it's value over time.'). That's
bullshit, plain and simple. Yes, gold has historically been a relatively
constant value store, but there is nothing intrinsically valuable about it,
and (the vast majority of) those claiming it is are alarmist nutcases with
little grasp of economics.

------
joelthelion
Use bitcoins? :-p

~~~
epscylonb
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...](http://blockexplorer.com/block/0000000000022043f9ea2c298f3381c6ddd86b968271117dd55cb48ac297954c)

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.

~~~
ceejayoz
> 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.

