What Is Goldman Sachs Doing With Venezuela's Gold?

Discussion in 'Financial Cents' started by stg58, Apr 29, 2015.

  1. stg58

    stg58 Monkey+++ Founding Member

    Old Hugo Chavez might roll over in his grave with the workers paradise hocking gold with the USA.
    I wonder why China did not get in on the deal.

    What Is Goldman Sachs Doing With Venezuela's Gold? - Bloomberg View
    Venezuela newspaper El Nacional reported Tuesday that Venezuela’s Central Bank and Goldman Sachs are ready to sign an agreement to swap or exchange international gold reserves with a start date in October 2013 until October 2020.

    The negotiated amount is equivalent to 1.45 million ounces of gold, valued at US$1.8 billion at today’s prices, which is to be deposited in the Bank of England with the transfers made directly to Goldman Sachs once delivery times are stipulated. Goldman Sachs will then pay U.S. dollars for the gold.

    An adjustment of 10% will be made to the asset value as a hedge in case the international gold market price falls. The annual interest rate will be a combination of dollars with the call BBA Libor equivalent to 8%.

    Do you know what this means? I do not (here's El Nacional's version, in Spanish but not significantly clearer), but it would seem to be a margin loan against the gold; i.e. something like:

    1. Venezuela is borrowing about $1.6 billion from Goldman for seven years.
    2. Venezuela is collateralizing that borrowing with gold worth $1.8 billion at today's prices (i.e. it's 90 percent of the value of the gold; that's the 10 percent haircut), and it's posting that collateral somewhere Goldman can get it (the BoE).
    3. The collateral will be subject to margin calls as the price of gold increases or decreases.5
    4. Venezuela is paying about 8 percent a year for this loan.6
    So is that a good deal for Venezuela? It depends how you count but it's hard to imagine the answer is yes. I mean: Why would Goldman do it if the answer was yes? There are some other arguments below but that is surely the main one.7

    Because, if true, this is not the most pristine deal you ever will see! (Goldman declined to comment.) I mean, one, Venezuela -- it inspires people to feel feelings, plus you might have some weird dynamics around actually getting them to post margin.8 Two, complex derivatives etc. -- more feelings, though despite the word "swap" here, my best guess about what is going on here is that it is really just a secured loan and so barely a derivative at all.

    Three, ask yourself, what is the purpose of this trade? I won't tell you the answer, because I don't know, but it sure seems to be for Venezuela to get some money for its gold without "selling" it. Which is the sort of sleight of hand that, as a bank, in 2013, you might want to avoid. Unless, again, it pays well.
    Marck and Mindgrinder like this.
  2. bpaintx

    bpaintx Monkey+++

    Would any of us loan Venezuela a dime with out collateral???
  3. vonslob

    vonslob Monkey++

    Snake making a deal with another snake.
    Marck, Tully Mars and Yard Dart like this.
  4. Brokor

    Brokor Live Free or Cry Moderator Site Supporter+++ Founding Member

    Great idea, give your gold to the Bank of England in exchange for worthless U.S. Dollars so you can experience the next civil war brought to you by the CIA and further bankrupt your nation, creating a debt that can literally never be paid off while the oil barons move in to suck out the crude and leave your peasantry angry, homeless and starving. And whoever said a tiny island couldn't rule the entire world? We should know -they've owned ours for nearly a century and Canada to boot. They might as well sweep through S. America and make it complete.

    Oh, and China had other business ventures in mind at the time: China just made a $2 billion move in an oil-rich west African nation - Business Insider
    pearlselby, vonslob and Mindgrinder like this.
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