Thread: Hugo Chavez, gold and politico-economic implications

Originally Posted by soot

I don't disagree that governments and central banks manipulate the market - regularly.

But I do disagree that Venezuela repatriating a fraction of its very small fraction of the world's total gold bullion reserve is going to cause any kind of havoc or "deepen the crisis".

Really, what's the worst that can happen?

The amount of Venezuelan gold being held by the United States is negligable, a couple tons at most.

Britain is holding (supposedly) 99 tons, so, a much gretaer amount.

Even if Britain doesn't have Venezuela's physical gold on hand (they sold it short) you're talking about a fungible asset so any gold will do.

What if Britain doesn't actually have any gold holdings in her forex reserves (almost preposterously unlikely)?

Then she'll have to go out and buy it, and at worst that's going to cost her $99B. Not chicken feed but Birtain isn't Greece and $99B isn't going to break her.

The money's going to have to come from somewhere though so that means interest rates are going to rise a few bps.

So the LIBOR jumps from 0.78% to 1%?

That's not exactly an economic catastrophe, is it?

Again, the same scenario could play out in the U.S. but since the United States' holding of Venezuelan gold are minimal the corresponding hit the Fed would take would be equally less severe.

Politically the U.S. and Britain might catch a little egg on the face as well.

I suppsoe that if every nation in the world that held their gold reserves in a British or American bank decided to repatriate all at once (and understand that I have no idea what the total foreign gold holdings of British and American banks are so I'm assuming worst-case) it could be pretty bad.

But in this case we've got to look at who is starting the potential run.

Venezuela?

Would you really suspect that the wole world is gonna run out and do something completly out of character because Hugo Chavez did it?

He's not exactly a respected world leader, right?

He's kind of a little bit of a dictator and maybe a bit of a paranoid schitzophrenic.

It's not like the whole world is gonna be, "Fuck "the West", if Chavez did he must be on to something. Let's pull our shit too!"

And understand that I don't think Chavez is the devil or anything. I wouldn't want to have him over for dinner, but I also know that a great deal of his bad rap is derived from the fact that he's got a big mouth and isn't afraid to speak truth to "the man" (among the reasons I wouldn't want him over for dinner).

But he really, for better or for worse, doesn't have any real clout and it's not like all of the nations who depend on the Britain, the U.S. and all of our collective (NATO) allies are going to jepoardize all the financial aid and foreign direct investment that pour out of our countries and into theirs in order to jump on a ship with Hugo Chavez in order to make a point.

This is noting but a blip on the radar. The press is making something out of it because that's what the press does and in all honesty I think it's being done as a media stunt in the first place.

I don't know exactly how much of the 400+ tons of Venezuelan gold is held in foreign (I assume British and U.S.) banks. I assumed that all of it was.

Their holdings amount to roughly 1 1/4% of world reserves. While this is not a huge amount, it isn't an insignificant amount, either. Markets are priced at the margin, and 400 tons of gold is definitely large enough to be meaningful.

While I fully agree that the follow on effect of countries emulating Chavez will be minimal, if the scramble to find 400+ tons of gold were to become apparent in the market (assuming that there is, indeed, a need to find the gold in the first place), then the effects could be a watershed event.

The world's monetary system is in a precarious position, and the realization that the world's gold reserves aren't where they are supposed to be (again, were this to be the case), would certainly amount to more than just a $100 billion blip on the screen.

smurf
I don't know exactly how much of the 400+ tons of Venezuelan gold is held in foreign (I assume British and U.S.) banks. I assumed that all of it was.

Their holdings amount to roughly 1 1/4% of world reserves. While this is not a huge amount, it isn't an insignificant amount, either. Markets are priced at the margin, and 400 tons of gold is definitely large enough to be meaningful.

While I fully agree that the follow on effect of countries emulating Chavez will be minimal, if the scramble to find 400+ tons of gold were to become apparent in the market (assuming that there is, indeed, a need to find the gold in the first place), then the effects could be a watershed event.

The world's monetary system is in a precarious position, and the realization that the world's gold reserves aren't where they are supposed to be (again, were this to be the case), would certainly amount to more than just a $100 billion blip on the screen.

Current estimates are that only about 40-50% of Venezuala's total reserves (which are anywhere from 1.25 - 1.50% of total reserves) are held in foreign bank vaults. But again, do not forget that "reserves" (those held by soveriegn nations for purposes of currency baking and/or various international account settlements) are only about 18% of the total gold supply in the world. More gold is accounted for in jewelry than in all other gold supplies combined. Private holders of gold investments (bullion and coins) are nearly as big a portion of total gold supply as sovereign reserves. Again, Venezuala's reserves are not 1.5% of the overall gold stock, merely the 18% of the total gold stock held in sovereign reserves (less than 3/10s of one percent)

Wow, one can not help but think, maybe if we had paid a little more attention to our neighborhood instead of one that will, quite literally, never have peace, an ego maniacal demagogue would not be in control of a nation at our front door. It is like having a socialist Rush Limbaugh in power, or maybe a billionaire oil tycoon who failed at everything else in his life, oh, we do know how that would turn out.

Originally Posted by LeftnorRight

Wow, one can not help but think, maybe if we had paid a little more attention to our neighborhood instead of one that will, quite literally, never have peace, an ego maniacal demagogue would not be in control of a nation at our front door. It is like having a socialist Rush Limbaugh in power, or maybe a billionaire oil tycoon who failed at everything else in his life, oh, we do know how that would turn out.

Yea it turned out with us getting a socialist failure.

Originally Posted by MattInFla

He might also find them frozen if he expropriates property belonging to US or British companies.

He's just planning ahead for his next grand theft.

Exactly Right.