The gold market last week was shaken by Venezuelan President Hugo Chavez s announcement that he intends to return Venezuela s gold reserves to the country.
Gold bulls have been delighted with the news that Venezuela wants to withdraw 150-200 tonnes of gold from banks in England, which will lead to a situation in which members of the London Bullion Market Association (LMBA) will be forced to buy gold at higher prices. high, since the ratio of the physical gold market to paper is 100: 1. This state of affairs will further increase the difference between “paper” and physical gold. Golden bulls also expect other countries to follow Venezuela’s example.
These fears are well-founded and cannot be ignored so easily. Venezuela s intention to return the gold from England came at a time not very suitable for members of the Association, as they are already experiencing the European banking crisis. Markets are dominated by fear and uncertainty. Emotions can become a real trigger for the gold market, which will ultimately impact world politics. Hugo Chávez not only wants to return Venezuela’s gold reserves to the country to protect its integrity. He is waging an idealistic war against the capitalist system and especially against the United States. That is why he has threatened to transfer foreign exchange and gold reserves to countries he trusts, specifically Russia and China. In addition, Chávez intends to nationalize the extraction and production of gold in Venezuela.
Hugo Chávez touched the weakest link in the capitalist system. The Venezuelan central bank told him that the Fed, the Bank of England and the Bank for International Settlements store gold from the entire banking system in major shopping malls and that all this gold only exists in the form of general ledger entries, with no guarantee. with physical gold. It is not known for sure whether Venezuela’s gold is kept separately in physical form or in the form of bearer notes, but there is no doubt that these Venezuelan actions are intended to inspire other central banks to demand their gold, which also is stored. abroad.