The first (of many) 21st century expropriations of the only true money begins today, after Hugo Chavez just announced that he will "nationalize the gold industry, including extraction and processing, and use its output to boost the country's international reserves." And who can blame him: he is merely doing what FDR did so well back in 1933 with executive order 6102. Our only advice is that he should wait before he sells: with the only option for the central planners now that we are reentering the downslope of the depression, being, as always, to print more money (it can be called anything, but at the end of the day the principle is clear), there is little probability of gold declining substantially for the foreseeable future. As for foreign investors in Venezuela who opened gold mines, we can only hope they were not all that surprised: "The move follows a dispute between his government and foreign miners who say the rules limiting the amount of gold that can be exported from the South American nation hurt their efforts to secure financing and create jobs. The gold industry will be just the latest part of the economy to be put under state control by the socialist leader, who said he would issue the necessary decree in the coming days and called on the military to help control the sector." The good news: gold may finally dip modestly which will simply provide yet another entry point for everyone (increasingly more and more) who has taken Jeremy Grantham's advice and is now fighting the Fed.
Toronto-listed Rusoro, owned by Russia's Agapov family, is the only large gold miner operating in Venezuela. It produced 100,000 ounces last year.
"I have here the laws allowing the state to exploit gold and all related activities ... we are going to nationalize the gold and we are going to convert it, among other things, into international reserves because gold continues to increase in value," Chavez said in a phone call to state television.
The announcement came a day after an opposition legislator revealed a report showing the government's top finance officials were recommending the repatriation of 90 percent of Venezuela's gold reserves held abroad.
The government has not commented on the report, which the opposition legislator said Chavez had yet to approve.
"We've managed to increase the international reserves. We have close to 12 or 13 billion dollars in gold reserves. We can't allow it to continue to be taken away," the president said, referring to reserves held in banks overseas.
Some more on why this move is very beneficial in the long-run:
Venezuela has some of Latin America's largest gold deposits, buried below the jungles south of the Orinoco river. According to official figures, formal mining in the country produces 4.3 tons a year.
Chavez agreed last year to let gold miners export up to 50 percent of production, from 30 percent previously. The other 50 percent must be sold to the central bank.
But that did not satisfy foreign companies like Rusoro, which said the limits made it much harder for them to secure financing abroad, develop projects and create local jobs.
One victim of the dispute has been a huge but long-troubled project called Las Cristinas. It has been in limbo since the government canceled a development license with another Canadian miner, Crystallex, in February.
Rusoro had expressed interest in Las Cristinas, which has not been developed since the 1980s but has reserves estimated at 17 million ounces. Locals once found a 1-kilo (2.2-lb) nugget there.
Net, net: millions in ounces of potential gold supply are about to be taken out of future circulation, courtesy of the uber-modern Venezuelan extraction and mining infrastructure. Which is why if gold does dip on expectations of Venezuelan dumping, don't expect said dip to last more than a few milliseconds.