Andrew McKillop
21st Century Wire
August 18, 2011
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, smashing through $1800 per ounce today.
This puts the shoe on the other foot for Britain, who is normally used to asking for their money back. A 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, with a dedicated urge to impoverish Europe, marginalize million of persons, de-industrialize the economy and destroy social solidarity.
Her present day acolyte and admirer, PM David Cameron recently had a taste of what happens when too much Thatcher-type free market discipline comes home to roost.
CHAVEZ GOLD: Hugo is looking to get all his gold bullion back to the Central Bank of Venezuela.
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Exactly like in the good old Soviet Union, you need one policeman every 200 metres along all main thoroughfares to suppress mob rage – and paying cops costs money. Hence, government spending rises.
Mrs Thatcher’s favourite finance minister Nigel Lawson was not in favour of it, but the late 1990s New Labour chancellor Gordon ‘Goldfinger’ Brown played the IMF game of breaking the back of gold bullion dealers attempts at driving gold prices to wantonly dangerously highs – say $ 350 per Troy ounce – in those dangerous days at the start of the millennium.
Gordon 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.
Venezuela is estimated to hold more than 210 tons of its 365 tons of gold reserves in European, 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 Bank of England, Venezuelan gold is held by several of the highly discreet, even secretive authorized bullion banks – JPMorgan Chase, Barclays Plc, Standard Chartered Plc and HSBC plc.
When the Venezuelan gold is handed back, they will likely have to move fast to replace it – through buying on the open market.
FREE MARKET LIBERALS CAN ONLY GO SO FAR
Chavez has a well-rehearsed rent-a-crowd 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 and blethering. Nearly one-half of all Venezuelan gold “parked” in the capitalist world’s central 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 or may also have taken stock of what is happening to oil – which supplies around 95 percent of Venezuela’s national revenues, exactly like Saudi Arabia. In a nosedive of the global economy, oil prices will seriously tank but gold prices could go on growing. Simply to buy food, it will be handy to have those 210 tons of yellow metal on site and in place.
REVENGE IS NIGH
Chavez may only be an expense account revolutionary, but 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. The key term to describe the revenge action against Chavez is “attachment risk”, in arbitration case rulings able to freeze Venezuela’s international assets, very surely 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 to go on rising.
More succinctly, the arrival of gold at Caracas airport could be simply an attempt by Chavez to spend his way back into another presidential mandate, using the gold for politically motivated spending ahead of next year’s presidential elections, and pre-emptive effort by US oil corporations to punish Chavez for booting them out of the huge potential, Orinoco oil sands.
While Venezuelan paper dollar assets can easily be frozen, this does not apply to metallic gold.
After Venezuela, the logical question is: what country is next?
Apart from other oil exporters who are well worth analyzing relative to their gold holdings, we will surely find that Europe and the USA have the biggest potential gold scandals lurking under the “keep the party going” rhetoric.
READ MORE VENEZUELA NEWS AT: 21st Century Wire Venezuela Files
