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Chavez Tells England "Hand Back My Gold"

Politics / Gold and Silver 2011 Aug 19, 2011 - 06:26 AM GMT

By: Andrew_McKillop

Politics

Best Financial Markets Analysis ArticleA long-running saga of the 1980s and 1990s was the strident demand by England's Margaret Thatcher for the European Commission to hand back what she considered was Britain's over-large contribution to European Union spending on themes that Mrs Thatcher did not like - for example trying to cut youth unemployment and stop industries delocalizing out of Europe. As she said: this was a wanton infringement of free playing go-go markets.


By the late 1990s Britain's New Labour chancellor Gordon 'Goldfinger' Brown also played the go-go markets, with the IMF game of stopping gold prices from getting to to wantonly dangerously highs - say $ 350 per Troy ounce - in those dangerous days at the start of the Millenium. Goldfinger Brown sold around one-half of the Bank of England's entire stock of gold in the 1999-2002 period at prices as low as $ 240 per Troy ounce. What a clever boy !

Today, Venezuelan President Hugo Chavez has ordered his nation's central bank to repatriate $11 billion of gold reserves held in developed nations’ institutions such as the Bank of England, as prices power through one record high after another. Venezuela is estimated to hold more than 210 tons of its 365 tons official gold reserves in European Union, Swiss, US and other banks, but will now progressively repatriate its bullion, Chavez announced on Wednesday August 16.

Outside the central banks, like the UK's Bank of England, Venezuelan gold is held by several of the highly discreet, even secretive aauthorized bullion banks - JPMorgan Chase, Barclays Plc, Standard Chartered Plc and HSBC plc. When the Venezuelan gold is handed back, the central banks and bullion banks will likely have to move fast to replace it - through buying gold on the open market.

CHAVEZ THE FREE MARKET LIBERAL
Chavez has a well-crafted revolutionary image, but when it concerns stashing his country's gold Chavez clung to the decisions of his predecessors steeped in admiration of Mrs Thatcher's free market ranting. Nearly one-half of all Venezuelan gold "parked" in the capitalist world's central banks and bullion banks was held in Thatcher's England, from very early on.

As Chavez said, August 16: “We’ve held 99 tons of gold at the Bank of England since 1980. I agree with bringing that home. It’s a healthy decision.”

The Venezuelan decision was simultaneously announced by central bank president Nelson Merentes, noting that for the world’s 15th-largest holder of gold reserves, repatriating the yellow metal is not unassociated with its 28 percent price leap, to date, in 2011. His colleague, Venezuelan finance minister Jorge Giordani hinted the real reasons for why Chavez is pulling his gold back home at this moment. He referred to the weakening U.S. dollar, the near-default by the U.S. government on its sovereign debt, and the pan-European sovereign debt crisis which all signal danger for Venezuela’s savings in the shape of yellow metal. This could opportunistically disappear or get sucked into IMF "virtual gold" operations, swapping real gold against SDRs but pretending the liquidated gold is still there, safe and comfy in a vault somewhere, and not replaced by titanium alloy bars with a thin covering of real gold.

Chavez could also have taken stock of what is happening to oil - which supplies around 95 percent of Venezuela's national revuenues, exactly like Saudi Arabia. In a nosedive of the global economy, those go-go markets will heftily mark down black gold prices, but gold prices could quite easily go on growing. Simply for Venezuela to buy the food it cant produce at home, it will be handy to have those 210 tons of yellow metal on site and in place.

REVENGE IS NIGH
Chavez is far from a darling of the liberal economic world, and his gold repatriation decision will have quick and strong anti-Chavez results. Apart from the UK gold stash, Venezuela parked even more tons in Switzerland, and a large amount in the USA, too. Bringing that gold back home is highly able to generate revenge action, and could itself be a reason why Chavez is acting now. The key term for possible revenge action against Chavez is "encumberment risk", in arbitration case rulings able to freeze Venezuela's international assets, including gold, cut its credit rating, and raise interest rates on Venezuelan debt.

Even prior to the Chavez decision, Venezuelan bond pricing already incorporated a sizeable premium on its lack of transparency (at rates as high as 14 percent) but his gold repatriation decision is a geopolitical signal for Venezuelan bond prices to fall further and interest rates on its sovereign debt to go on rising.

To be sure, the arrival of gold at Caracas airport could simply be an attempt by Chavez to get the cash for spending his way back into another presidential mandate, with a nice burst of politically motivated hand outs ahead of next year’s presidential elections. Spending the gold cash now, Chavez could pre-empt efforts by US oil corporations to punish Chavez for booting them out of the huge potential, but expensive to develop Orinoco oilsands. Venezuela's paper dollar assets can easily be frozen, but this does not apply to metallic gold.

After Venezuela, the logical question is what country next ? The biggest danger of the Chavez gold decision is that other countries can do the same thing. When or if that happens, we have the makings for the ultimate in gold scandals lurking under the present and failing attempts to "keep the party going" being operated by the world's Plunge Protection Teams. Kicking away the gold prop at this time is about as revolutionary as you can get - but maybe Chavez didnt know ?

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2011 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Ernie Messerschmidt
19 Aug 11, 19:28
Why revenge on Venezuela?

The article says, "Bringing that gold back home is highly able to generate revenge action." Revenge happens when one party commits some damaging action, unethical or criminal, and the damaged party reciprocates, returns it in kind. There is a kind of justice to it. Okay, it's Venezuela's gold. They have every right in the world to ask for it back. This is no injustice, no crime, that should provoke revenge. You lend me your expensive car, you ask for it back. Does that give me cause to break your legs? Not unless I'm insane and criminal myself. "Freezing" Venezuela's assets is just a euphemism for stealing them. Recall how Libya's assets, earmarked for the African Development Bank, were "frozen".

What's the story? Do the Banks in the UK, US and Switzerland not have the gold? Have they been committing fractional reserve fraud with it? Taking revenge on Venezuela for requesting that its assets be returned is criminal. It's a sad commentary on the state of the world when such criminality is taken as normal. Can we expect the USA to start raining bombs on Venezuela's citizens at the international bankers' command? Am I missing something? Is there actually anything wrong with Venezuela's asking for its gold? What's wrong with this picture? Nothing, if you understand that the banks are a crime syndicate. That's the only way it makes sense. Criminality -- ruthless theft and fraud, financial war by means of deception -- is their nature. Those banks should be nationalized, with a mandate to serve the public and the profit motive taken out of them. At one time they provided some legitimate investment services, but now they are just parasites that suppress development and criminalize the economy.


dr ray
21 Aug 11, 16:18
Chavez' gold

I agree with Ernie here - what is the story?. There will be consequences if Chavez wants his gold back but the author has missed the significance (or at least not mentioned it).

The banks holding Venezuela's gold have indeed commited fractional reserve fraud with it and will have to buy it back on the open market to back up all the "paper" gold they have sold.

A factual comment: Margaret Thatcher was UK Prime Minister, not England's. It is a mistake akin to saying Obama is President of Washington DC.

If I was Chavez and I can see States like the UK, USA and Switzerland conveniently forgeting who overseas assets belong to (eg Syria, Libya) and the fiat currency system about to fall apart I would do the same


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