Thursday, October 6, 2011

Hugo Chavez Issues A Wake-Up Call To Paper Gold Shorts

Venezuela will begin repatriating its gold reserves from Western nations by mid-November, the central bank head said on Wednesday...first boat laden with reserves would be back by mid-November. "It will be here as soon as possible, no later than in a month-and-a-half," he said...Venezuela's gold abroad is in England, Switzerland, the United States, Canada and France
Here's the reuters LINK

I've been wondering when we would next hear about this ever since Chavez first announced the move during the summer.  Interestingly, the nations who hold VZ's gold are the very same nations who participate in active "fractional" bullion safekeeping storage operations.  This means that there are many multiples of paper claims - futures, forwards and OTC derivatives - issued against the actual known - i.e. "officially reported" - physical inventories held by the bullion vault banks in these countries. 

Anyone worried about counter-party default risk?  Ask Madoff investors and AIG counter-party banks (Goldman, JP Morgan, et al) how they feel about counter-party default risk...know where your gold is?


  1. know where your gold is?

  2. Finally got my package in the mail today. It was like Christmas at my house today. I took advantage of the correction and ordered 3 1oz gold Canadian maple leafs 99999 edition (boy are they stunning in person) and 1 monster box of 2011 american silver eagles (San Fran Mint). All of it is going straight into my safe after I am done fondling and appreciating the beauty of them. I bought the dip and if Blythe & co. have another smackdown I am prepared to buy more. I know where my gold & silver you?


  3. i'm worried that chavez might meet a gaddafi type moment sometime after repatriation. let's see what type of justification we can use to invade venezuela.

  4. Dear Doctor Dave,
    At this late stage of the game would it be correct to assume anyone who owns physical gold and doesn't have it in their possession, i.e. on their premises, has been infected with the highly contagious dis-ease, running rampant as it spreads across the financial globe, called DENIAL?

  5. (Dave)

    LOL DENIAL ain't a river in Egypt, is it?

  6. Michael Lewis: The United States is Now a Third-World Nation

    Michael Lewis, author of the new book “Boomerang,” says the United States and many European nations suffered a moral failure which lead to economic collapse. Lewis insists that the U.S. economic situation will get much worse before it gets better.

  7. (Dave)

    Funny, I wonder why Ritholz never published my view when I wrote him 5 years ago and told him this country was a Banana Republic.

    Thanks for the link. I feel like telling Lewis he's a several years late with that call: "Hey Michael, how about game of liar's poker? By the way, were aware that Larry Bird is retired?"


  8. Hopefully start of a trend...

    Miner Gets Physical With Payout

    SYDNEY—Some banks are accepting gold as collateral for loans, and developer Donald Trump will take it as a security deposit in his new skyscraper in Manhattan. Now, a Colorado gold mining company has another idea: make dividend payments in bullion instead of cash.

    Jason Reid, president of Gold Resource Corp., whose Colorado Springs, Colo., company is developing projects in southern Mexico, said Gold Resource plans to make the first dividend payments within months.

    To prepare for the novel payout, the company in August began exchanging $1 million of its cash into metal with the idea of minting one troy ounce gold and silver coins to be distributed monthly.

    "Many investors would rather hold physical gold or silver rather than fiat currencies that will continue to be debased," said Mr. Reid.

    Some think the idea of paying bullion instead of cash just might catch on. Ian Lawrence, managing director of in Cobar Consolidated Resources Ltd. in Melbourne, said he has had discussions with several investors about getting dividends in physical metal and personally thinks it is a "great idea."

    "There's been a lot of interest from shareholders," he said.

    Dividends in gold are another example of the metal's new allure as an alternative currency. Hedge funds have allowed investors to denominate holdings in gold, and exchange-traded funds backed by physical gold have become some of the most popular investment vehicles.

  9. I really enjoy this site and since my kid brother is the best skier in all of Colorado...soul like it even more.

    Right after Chavez's announcement if you'll remember... was when gold went parabolic. I expected short covering then. I fig'd the bullion banks would have to unwind at least 10x the positions as the underlying commodity dried up. That is a huge amount. I believe and still do, that bullion banks simply leased new gold deposits to make up for the shortfall or simply upped the fractional margins. Now if three or four countries did what Chavez did...all at once...well now wouldn't that be fun?

  10. (Dave)

    Thanks for the feedback Brian. Appreciate it. I like to think I'm the best 49 yr. old skier in Colorado but I'm probably not - maybe in the bumps...

    I see you live in the heart of silver country. Silver is going to outperform gold over time!