Bring the Bars Back Home

Gold bars, that is.  The Wall Street Journal recently reported back in August (I missed it) that Venezuelan president Hugo Chavez made the decision to pull most, if not all, of Venezuela’s gold reserves back from Barclay’s London and the Bank for Internetional Settlements in Basel.  There has been some speculation as to what Chavez may be up to.  I say speculation since he isn’t exactly keen to share his train of thought with Washington.

There are a variety of reasons why Chavez may want to pull his gold back into Venezuela.  For one thing, China has extended a credit line to the Venezuelan government, and so far, they have been meeting that obligation with payments of oil.  China is the international equivalent of a Hummer H4 towing a motorhome – it sucks gas faster than a fat kid sucks down a milkshake.  Another reason may have to do with the fact that Venezuela is embroiled in 17 arbitrations with companies who lost out big when Chavez nationalized pretty much everything Venezuela had to nationalize.  There is, however, one more theory, and it has to do with Libya.

Chavez made a vague mention of “the powers of the North” that robbed Libya through sanctions and so on.  Remember that article I wrote about Qaddafi and his gold dinar scheme?  Is it possible that Chavez is alluding to what some have called the real reason for our invasion of Libya?  It certainly wouldn’t be the first time that he has cast a dubious eye at the U.S. and its allies.  Of course, assuming for a moment that the gold and the oil was the real reason that we invaded Libya, Chavez might be onto something.  You don’t have to agree with everything that comes out of the man’s mouth, but if he is legitimately concerned about the same fate befalling him and his country, you can at least imagine what’s going through his head.

But back to the gold.  According to Zero Hedge, Chavez has gold deposited with JP Morgan, Barclay’s, and The Bank of Nova Scotia.  JP Morgan has reported almost exactly 10.6 tons of gold, which is exactly the amount that Chavez has recalled from storage in his bid to nationalize Venezuelan gold.  Great, so Chavez likes the stuff that glitters.  Who doesn’t?  What’s the problem?  The problem is that JP Morgan and others are using this gold to help back deposits.  Deposits which, in terms of the fact that they’re worthless paper money, are becoming more worthless by hour.  What is likely to happen is that gold prices are going to surge to new highs going into the new year, and the financial situation is going to become more precarious.  The race to find more gold is on.

This even took place all the way back in August, and at the time, JP Morgan was predicting that gold could potentially reach $2,500 per ounce.  I think that’s a bit of an exaggeration, as gold currently stands at around $1,725 per ounce and originally was not predicted to go higher than $1,850 in 2011.  I think that’s a more realistic expectation, but I certainly don’t look for the price of gold to go down anytime soon.  And it certainly seems to be worth noting that skeptics in the US aren’t the only ones who noticed something fishy about the whole Libya situation.  In a time when the economy is flagging and people and governments are ever-more desperate to keep the wheel grinding on for as long as possible, hang on to your gold.  Chavez might not be the most popular guy in America, but he’s not wrong about some things.  You know, the United States government has demanded that people hand over all of their bullion before.  From where do you think that old joke came about burying your valuables in the backyard?  It would appear, alas, that there’s more going on in the world than meets the eye, and I think we would all be wise to keep our eyes on our coin purses right now.

If you want to check out the sources, here they are:

“Venezuela Plans to Move Reserve Funds” – The Wall Street Journal
“Chavez Emptying Bank of England Vault as Venezuela Brings Back Gold Hoard” – Bloomberg
“Chavez Decrees Nationalization of Gold Industry Amid Surging Bullion Price” – Bloomberg
“Perfect Storm Sees Gold and Silver Surge” – Gold Seek
“As Chavez Pulls Venezuela’s Gold from JP Morgan, is the Great Scramble for Physical Starting?” – Zero Hedge