Wednesday, August 17, 2011

Chavez Nationalizes Venezuela's Gold Industry, Recalls Hundreds of Tons of Gold Held Abroad, May Cause a Scramble for Physical Gold From JP Morgan and Others


The two biggest stories of the day - in case you missed them - were that Venezuelan president Chavez is nationalizing the country's gold industry, and he's recalling hundreds of tons of gold held in European banks back to Venezuela.

As Zero Hedge notes:

As the WSJ reported earlier, "The Bank of England recently received a request from the Venezuelan government about transferring the 99 tons of gold Venezuela holds in the bank back to Venezuela, said a person familiar with the matter. A spokesman from the Bank of England declined to comment whether Venezuela had any gold on deposit at the bank." That's great, but not really a gamechanger. After all the BOE should have said gold. What could well be a gamechanger is that according to an update from Bloomberg, Venezuela has gold with, you guessed it, JP Morgan, Barclays, and Bank Of Nova Scotia. As most know, JPM is one of the 5 vault banks. The fun begins if Chavez demands physical delivery of more than 10.6 tons of physical because as today's CME update of metal depository statistics, JPM only has 338,303 ounces of registered gold in storage. Or roughly 10.6 tons. A modest deposit of this size would cause some serious white hair at JPM as the bank scrambles to find the replacement gold, which has already been pledged about 100 times across the various paper markets. Keep an eye on gold in the illiquid after hour market. The overdue scramble for delivery may be about to begin.

Both developments could be bullish for gold prices, as nationalizing Venezuela's gold means less gold available in the free market, and the scramble for physical gold to make good on Venezuela's recall demand could challenge the 100-to-1 leverage levels of paper gold derivatives to physical gold.


at

3 comments:

  1. MajuAugust 18, 2011 at 4:50 PM

    That should tackle inflation, giving strong backing to the Venezuelan currency.

    ReplyDelete
  2. jim hallAugust 20, 2011 at 7:47 AM

    Genseler was totally snowed over. Had no clue what foureyes was talking about.

    ReplyDelete
  3. intraderAugust 21, 2011 at 10:02 AM

    Crooks at the OTC? or at the banks? 100 to 1 leverage at the OTC. I you think your gold is there, when you want it the OTC or the bank has to go buy the gold to replace yours

    ReplyDelete

→ Thank you for contributing to the conversation by commenting. We try to read all of the comments (but don't always have the time).

→ If you write a long comment, please use paragraph breaks. Otherwise, no one will read it. Many people still won't read it, so shorter is usually better (but it's your choice).

→ The following types of comments will be deleted if we happen to see them:

-- Comments that criticize any class of people as a whole, especially when based on an attribute they don't have control over

-- Comments that explicitly call for violence

→ Because we do not read all of the comments, I am not responsible for any unlawful or distasteful comments.