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Ecuador Transfers Half Its Gold Reserves To Goldman Sachs In Exchange For "Liquidity"

Tyler Durden's picture




 

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

This is a great example of how the game works. In a world in which every government on earth needs “liquidity” to survive, and the primary goal of every government is and always has been survival (the retention of arbitrary power at all costs), the provider of liquidity is king. So what is liquidity and who provides it?

In the current financial system (post Bretton Woods), the primary engine of global liquidity is the U.S. dollar and dollar based assets generally as a result of  its reserve currency status. Ever since Nixon defaulted on the U.S. dollar’s gold backing in 1971, the creation of this “liquidity” has zero restrictions whatsoever and is merely based on the whims and desires of the central planners in chief, i.e., the Federal Reserve. As the primary creator of the liquidity that every government on earth needs to survive, the Federal Reserve is thus the most powerful player globally in not only economic, but also geopolitical affairs.

The example of the so-called sovereign nation of Ecuador relinquishing its gold reserves to Goldman Sachs for “liquidity” which can be conjured up by the Fed on a whim and at zero cost tells you all you need to know about how the world works (read my post: Why Fiat Money is Immoral).

Now from Bloomberg:

Ecuador agreed to transfer more than half its gold reserves to Goldman Sachs Group Inc. for three years as the government seeks to bolster liquidity.

 

The central bank said it will send 466,000 ounces of gold to Goldman Sachs, worth about $580 million at current prices, and get the same amount back three years from now. In return, Ecuador will get “instruments of high security and liquidity” and expects to earn a profit of $16 million to $20 million over the term of the accord.

 

“Gold that was not generating any returns in vaults, causing storage costs, now becomes a productive asset that will generate profits,” the central bank said in the statement. “These interventions in the gold market represent the beginning of a new and permanent strategy of active participation by the bank, through purchases, sales and financial operations, that will contribute to the creation of new financial investment opportunities.”

This isn’t the first South American country we’ve heard about sending their gold to Goldman. Recall my post from late last year: Is Venezuela Selling Gold to Goldman Sachs?

This gold is headed straight to China or Russia. Good luck every getting that back amigos. Just ask Germany.

Full article here.

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Mon, 06/02/2014 - 13:06 | 4817258 Stoploss
Stoploss's picture

" gold reserves to Goldman Sachs for three years"

 

It won't take that long.

Mon, 06/02/2014 - 13:07 | 4817261 RevRex
RevRex's picture

Buy sign.

Mon, 06/02/2014 - 13:09 | 4817265 strannick
strannick's picture

Lease = sell

Mon, 06/02/2014 - 13:09 | 4817269 insanelysane
insanelysane's picture

What is Goldman going to do with all of that worthless yellow metal???

Mon, 06/02/2014 - 13:13 | 4817286 Arius
Arius's picture

Smart decision i must say ... as another American investor Icon once pointed out we spent money to dig it from the ground, then we spent money to put in another hole and pay people to protect ... complete nonsense!

hopefully more central banks will realize it and do the same!

Mon, 06/02/2014 - 13:16 | 4817297 strannick
strannick's picture

Yes Ecuador paying the wolves -fedres, BOE- to guard their golden hehouse, can be quite pricey. Often, they will charge you storage fees even long after the gold is gone. i.e Morgan Stanley.

Mon, 06/02/2014 - 13:18 | 4817315 WhyDoesItHurtWh...
WhyDoesItHurtWhen iPee's picture

Once again "send us your scrap gold" you know, "barbaric relic" and all that.

Mon, 06/02/2014 - 13:21 | 4817321 Stuck on Zero
Stuck on Zero's picture

Am I mistaken but isn't that what the Spanish were telling the Incan Kings in the 1500s?

 

Mon, 06/02/2014 - 13:25 | 4817335 ParkAveFlasher
ParkAveFlasher's picture

"Yes, and give us your daughters too.  You don't need those."

Mon, 06/02/2014 - 13:27 | 4817344 Pladizow
Pladizow's picture

Aye Dios mio. Correa es muy stupido!

Mon, 06/02/2014 - 13:30 | 4817358 ParkAveFlasher
ParkAveFlasher's picture

No, just the latest in a long line of colonialist looters heading Ecuador.  He had everyone fooled with his quechua shirts and nationalistic gasbagging.

Mon, 06/02/2014 - 13:32 | 4817367 Pladizow
Pladizow's picture

How do you say, "Brown's Bottom" in spanish?

Mon, 06/02/2014 - 13:35 | 4817378 Ahmeexnal
Ahmeexnal's picture

Venezuela has done the same. False opposition.
Ecuador uses the US dollah as national currency. Venezuela is about to do the same. They just give the banksters a much needed air tank to survive.

Mon, 06/02/2014 - 13:39 | 4817384 ParkAveFlasher
ParkAveFlasher's picture

Well put.  Ecuador is an expansion reservoir for dollar transactions or oil-driven price offset mechanism for likewise.  That makes me wonder why gold and not oil as is typical.

The peasants are too uneducated to realize the finance trap they are in, they think that they can use dollars because they are so rich, you see?  So they all have two cars now (financed, of course) and make a quarter of what we make in the USD although their cost basis is the same.  Default, dead ahead!

Mon, 06/02/2014 - 13:58 | 4817431 Pinto Currency
Pinto Currency's picture

 

 

The Reserve Bank of India says the LBMA is levered 92:1 paper (vapor) to gold.

The LBMA can create 43,000,000 million oz. in trading positions with this gold from Ecuador.

Jabba just ate Ecuador's gold, burped and rolled over.

 

Mon, 06/02/2014 - 14:15 | 4817492 I MISS KUDLOW
I MISS KUDLOW's picture

oh come on with this story

Mon, 06/02/2014 - 14:26 | 4817528 THX 1178
THX 1178's picture

Liquidity crisis dead ahead.

Mon, 06/02/2014 - 14:33 | 4817542 knukles
knukles's picture

Well, they gotta borrow it from somewhere since the CHineee are hoarding it and making the Fed's life difficult....
All confirmed, officially via a Chinee report

http://www.wantchinatimes.com/news-subclass-cnt.aspx?cid=1203&MainCatID=...

 

It's sweeter than sucre

Mon, 06/02/2014 - 15:36 | 4817726 nope-1004
nope-1004's picture

I love the phrase "wasn't generating any returns".  The statement is so self serving, because it was the corrupt reserve currency Fed that devised a system to ignore gold, so of course it's "not going to generate any returns" under the umbrella of the US foreign petro-dollar policy.

Get rid of the Fed and this idiotic notion of one nation controlling all financial transactions, and that gold will generate returns because it will be the only tangible asset that carries inherent trust.

 

Mon, 06/02/2014 - 15:40 | 4817734 BaBaBouy
BaBaBouy's picture

Wooopiiii ...

The GERMANS Can Now Get A Bit More Of Their GOLD Back...

And ECUADOR???       Suckers................

Mon, 06/02/2014 - 16:08 | 4817832 12ToothAssassin
12ToothAssassin's picture

All your gold are belong to us gs

Mon, 06/02/2014 - 16:27 | 4817879 Troll Magnet
Troll Magnet's picture

This is why Ecuador is, well, Ecuador.

#3rdWorldCountry4ever.

Mon, 06/02/2014 - 17:26 | 4818097 Rusty Shorts
Rusty Shorts's picture

Here's Andy, a guy I follow online. He travels all over and just happens to be in Ecuador right now, very interesting report...apparently it's a great place to hang out.

 

https://www.youtube.com/watch?v=hvlA_6VvppM

Mon, 06/02/2014 - 18:20 | 4818250 MartyBee
MartyBee's picture

A whopping 14.5 tons.

Mon, 06/02/2014 - 18:40 | 4818315 remain calm
remain calm's picture

You have to ask yourself why would GS give Dollars for gold which they think is worth less than $1000/oz. Things that make you go hmmm. FU GS

Mon, 06/02/2014 - 20:25 | 4818587 Not My Real Name
Not My Real Name's picture

Is it just me, or does it feel like the walls are rapidly closing in on us?

Mon, 06/02/2014 - 20:51 | 4818658 Crawdaddy
Crawdaddy's picture

Gracias Rusty - good link. I like this Andy.

Mon, 06/02/2014 - 16:31 | 4817894 MeMadMax
MeMadMax's picture

Ecuador is about as lefty loon as they come.

They make deals with drug dealers.

They have the strictist gun control laws on the books.

They have more "homemade" guns than most other countries.

They have more cops killed for their weapons.

They have a sky high murder rate that is near the top of the world.

The UN has stepped in on ecuadors "human rights" policies.

 

 

The only thing that keeps the place alive???

 

Oil...

Mon, 06/02/2014 - 16:56 | 4818003 CheapBastard
CheapBastard's picture

Well, it's easier to siphon off "liquidity" to ones secret Swiss bank account then it is to 'disappear' kilo bars of the barbaric metal.

 

Just say'n.

Mon, 06/02/2014 - 18:31 | 4818282 disabledvet
disabledvet's picture

Best comment...and only non worthless one on the thread.

"If the Government folks are ready to loot the country before they flee...get a half billion DOLARES for the Government's gold first."

The story obviously is that Goldman Sachs has the half billion...band of course "all looters are welcome here."

Ecuador has a lot more than just oil...and what little of that they have they can't get out of the ground right now.

They should have hundreds of billions in shale gas and oil right now...but instead they rolled the dice on the dumbest lawsuit in history and look like they're about to flee the country.

Tue, 06/03/2014 - 01:19 | 4819290 gonetogalt
gonetogalt's picture

The thing about these banana republics is that the big guys only fuck with other big guys, and because their gov'ts are mainly disfunctional, there just isn't enough energy in the system to fuck with the rest of us proles...So ignore the laws on the books, just take the most fucked up, lawless country you can find, there you'll find the closest approximation of the libertarian ideal, free from being fucked with. 

 

(Until USAid gets here with a 'grant' to improve something)

Mon, 06/02/2014 - 15:42 | 4817730 BaBaBouy
BaBaBouy's picture

.

Tue, 06/03/2014 - 01:09 | 4819278 gonetogalt
gonetogalt's picture

Nice link, knuckles, that's it in a deadpan nutshell.

Mon, 06/02/2014 - 14:46 | 4817581 Manthong
Manthong's picture

I know GS is that evil.

I did not know that Ecuador was that stupid.

Three years… LOL.. Hey Ecuador, ask Germany how that works.

Even Chavez had some smarts.

Mon, 06/02/2014 - 15:02 | 4817633 ParkAveFlasher
ParkAveFlasher's picture

Chavez had enough sense to die from cancer that he acquired at around the same time as his "countrymen's" gold.

Mon, 06/02/2014 - 16:42 | 4817938 zerozulu
zerozulu's picture

We don't know the real story behind. Once a gringo printed fake dollars and by mistake printed 55 dollar bill. He thought it is difficult to sell it to Americans so he took it to a Mexican. Mexican said I only can give you 45 dollar for this. American said OK. Mexican when in side his house and came back with a 45 dollar bill.

Mon, 06/02/2014 - 15:30 | 4817699 Kirk2NCC1701
Kirk2NCC1701's picture

Well, there was this blonde in the B4alphaQ Constellation, to whom Kirk pledged Liquidity if she opened her gold vaults for a "robust audit".

;-)  Kirk out.

Mon, 06/02/2014 - 13:59 | 4817444 Silky Johnson
Silky Johnson's picture

Great deal! Here take this stuff of great value and give us some paper that has been shat out by Mr. Yellen.

And how come GS is so kind as to accept some worthless yellow rocks for a handfull of the almighty Dollah?

Mon, 06/02/2014 - 14:50 | 4817598 TeamDepends
TeamDepends's picture

Liquid Paper = Krugmanian Physics

Mon, 06/02/2014 - 18:16 | 4818233 hoos bin pharteen
hoos bin pharteen's picture

Now we know why gold was slammed the past few days.  It's a classic pawn shop play - Drive down the gold price to reduce Ecuador's "loan," and then wait for Ecuador to default.  

Tue, 06/03/2014 - 02:08 | 4819367 ebear
ebear's picture

Ecuador uses dollars because a previous government destroyed the national currency by issuing too much.  Sound familiar?

Mon, 06/02/2014 - 14:56 | 4817613 Lux Fiat
Lux Fiat's picture

Rabiblanco.

Mon, 06/02/2014 - 15:15 | 4817661 EllaDara
EllaDara's picture

Los Brownas Bottomas

Mon, 06/02/2014 - 13:33 | 4817370 THX 1178
THX 1178's picture

Damn. Ecuador basically short-sold their stash. 

Wed, 06/04/2014 - 20:23 | 4825193 Jafo
Jafo's picture

Almost right.  I reckon that Goldman is going to short sell that gold into a falling market and slam gold good and propper to US$1,104 or even lower then buy it back.  They may do this several times.  However, this will put in the absolute bottom for gold and it will only go up from there.  Gold equities are going to take it even harder than phys and they will be massively good buying near that bottom.

Mon, 06/02/2014 - 18:30 | 4818279 twh99
twh99's picture

Only the virgin ones.

Mon, 06/02/2014 - 13:28 | 4817346 Herd Redirectio...
Herd Redirection Committee's picture

My take from this is... Ecuador didn't have the physical.  They had some receipts for gold.

Instead of demanding delivery (which they were implicitly told "Not gonna happen") they 'cut a deal' to accept USD in place of their paper gold.  To make it palpable to the people they have to say its for 3 years, and that its only been leased.

They never possessed it in the first place.

Mon, 06/02/2014 - 13:35 | 4817377 ParkAveFlasher
ParkAveFlasher's picture

Ecuador has real gold and real need for dollars as they are dollarized, and thus import at an international cost basis without the "benefit" of salary/productivity "par" (or even "bogie", for that matter).  Are they on an over-extended credit card and getting gut-punched by GS?  I wonder why their go-to of petroleum production is not bailing them out, if that is indeed the case.

Tue, 06/03/2014 - 01:25 | 4819300 gonetogalt
gonetogalt's picture

Equador mines quite a bit of gold, it's certainly physical and their own production. Stupid fucks, except for the probabilityof the bosses bailing out, then smart.

Tue, 06/03/2014 - 02:10 | 4819372 ebear
ebear's picture

"Equador mines quite a bit of gold"

Not really, compared to what they have in the ground.

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