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I don't get how the crowd-source option is at all attractive, though perhaps I don't understand enough about how the gold markets work. If I was physically bas
by dotBen 15y ago
I don't get how the crowd-source option is at all attractive, though perhaps I don't understand enough about how the gold markets work.
If I was physically based in Venezuela and owned X gold bars in my physical possession, why would the same amount of gold bars + 2%, in a foreign distant country I have no connection with, be preferable?
With gold in my possession I have instant liquidity. Gold in some foreign country, and in an inaccessible vault to boot, gives me limited liquidity. Even if gold is a long-term investment, I still want ease of liquidity at the appropriate time.
Finally, presumably there are fees associated storing your gold in the Bank of England's vault? Well, as a British citizen I certainly hope so as I'm not able to store my (theoretical) gold there.
EDIT: So one of the child comments is implying that the way the gold in being held at the Bank of England means that it is available to be traded on the London Gold Exchange. I had originally interpreted from the article that the gold was simply being held in a vault, ie with limited access and availability.
- wtn 15y agoGo read Felix Salmon's article again and read some Wikipedia articles about how commodity exchanges work. Gold in your possession is less liquid than gold in an exchange approved vault in Manhattan or London…
- dotBen 15y agoGold in your possession is less liquid than gold in an exchange approved vault in Manhattan or London… Um, so why does Hugo Chávez want the gold in his possession then?
- lucasjung 15y agoMaybe because he's paranoid and doesn't understand economics?
- ohyes 15y agoOr so he can set up his own vault full of gold similar to the bank of England.
- deleted 15y ago[deleted]
- kzrdude 15y agoFor example, right now Libya's assets are frozen. Which proves that UK is capable to do the same with Venezuela, if the situation allowed. So bringing home the gold gives independence.
- gwern 15y ago> If I was physically based in Venezuela and owned X gold bars in my physical possession, why would the same amount of gold bars + 2%, in a foreign distant country I have no connection with, be preferable? Are you serious? The Venezuelan upperclass despises Chavez and fears him. If any had those gold bars with them in Venezuela, they would take that offer in a heart beat! They trust the Bank of England far more than Chavez or local Venezuelan security, for that matter. (You can find all this in the media or even ancient books like Chua's _World on Fire_, but to toss in a personal anecdote - My little sister spent a few months in Venezuela with members of the lower bits of the upperclass; she remarked on how fortified and how much razor wire there was on the compounds there.)
- dotBen 15y agoThe Venezuelan upperclass despises Chavez and fears him. Well in that case, why would they trust him to make right on his promise to deliver them the gold + 2% in a foreign vault upon the physical surrender of their own gold? Why would they even want to indicate they had such gold in their physical possession and thus open up potential further scrutiny to their affairs and net worth? You're probably right that they don't trust him, but that just further makes this idea untenable.
- gwern 15y agoIt's an iterated prisoner's dilemma. All you need are a few people to turn in some gold (for any reason, including because they trust Chavez), and then check with the Bank of England that the appropriate sum has been credited to their account with the Bank, and you're done. The cycle has been started - if Chavez really wants the gold physically in Venezuela (as he apparently does if he's seriously considering the various extremely expensive options available), at no point does he have incentive to defect except at the very end, where the reward for defecting is minimal.
- wmf 15y agoI think the idea is that people would find ways to safely ship gold to Venezuela, not that the government would buy gold that is already there. Perhaps the cartels can try shipping something into South America...