Chavez move could drive gold through the roof - and put confiscation on the cards again

The theory that governments and bullion banks may not have the gold they claim to hold will be put severely to the test as Venezuela seeks to call in its overseas gold holdings

Author: Lawrence Williams
Posted: Monday , 22 Aug 2011

LONDON -

Long dismissed by the mainstream as conspiracy theorists and a fringe organisation which appeals only to right wing gold fanatics, the Gold Anti Trust Association (GATA) is at last beginning to feel totally vindicated by events. Over the years since its foundation the organisation has unearthed some telling official evidence of government and central bank meddling in the gold market - perhaps to try and stabilise currencies, given gold is seen by many as a bellwether of the health of the dollar and, by association, of most of the world's other currencies. True, some of GATA's ‘findings' may revolve around making the facts it has uncovered fit the founders and supporters of the organisation's basic theories, but it seems that many of the pressure group's warnings and predictions are beginning to come true and find more favour with some key economists.

At the heart of many of GATA's arguments is the theory that much of the world's gold reserves held by central banks, and by the bullion banks, is no longer really there - or if it is there that title is held to each gold bar by a large number of different organisations and people simultaneously. Much of the Central Bank and bullion bank gold holdings are claimed to have been leased, loaned or sold over the years and although the banks may theoretically hold title to this gold much of it, according to GATA, has disappeared into the broader financial markets and is unlikely to be recoverable by its purported banking sector holders.

If this is actually the case - then a move such as that by Venezuela to repatriate its gold holdings held in foreign vaults in New York, London, Zurich et al - could exert a serious squeeze on the gold markets as the bullion banks and central banks try to source the physical gold that may have disappeared from their vaults to deliver to Venezuela. Either that, or they default - or are protected by some newly, and rapidly, imposed government strictures on physical gold exports to obscure the situation even further. Chavez would, of course, cry foul but there might be little he, or his government, could do about it apart from confiscation of any remaining foreign-owned assets which have not yet entered his nationalistic grasp. We wait and see what actually happens.

If gold is in as tight a supply situation as GATA claims, then without government protection the bullion banks and central banks will have to between them somehow lay their hands on a massive 211 tonnes of the yellow metal to send to Venezuela. Don't expect them to accomplish this in a hurry - and even if they can manage to pull this amount of physical metal together the impact on the gold price could be massive.

Should Chavez get his physical gold without any fuss, or serious impact on the gold price, then perhaps GATA will have been barking up the wrong tree in their analysis of global gold holdings and this would be very bearish for the gold price. However should banks and governments start putting obstacles in the way of such a transfer, GATA will have even more ammunition for its campaigning stance - and the gold price would likely skyrocket to new highs..

A sobering thought too for physical gold holders is that any government legislation aimed at protecting the central banks and their gold holdings from a growing move to take delivery of physical could also be extended to individuals' gold holdings. Could confiscation of gold be a step nearer again?