Venezuela scrambles to bring home gold reserves

* Source says ingots with be flown back, beginning in Nov.

By Eyanir Chinea

CARACAS, Oct 26 (Reuters) - At the foot of a dimly lit spiral staircase far below Venezuela's Central Bank, workers prepare for an unusual arrival: 17,000 gold bars being shipped back on the order of President Hugo Chavez.

Repatriating about 190 tonnes of bullion worth more than $11 billion from banks in the West will be risky, slow and expensive, experts say.

It is just the latest in a string of grand gestures and controversial plans by the unpredictable socialist leader that are easier for him to order than to put into practice, and it has set officials scurrying to make it happen.

His political opponents accuse Chavez of planning to use the country's gold to boost his campaign war chest ahead of next year's presidential election, and others say bringing the gold home is a waste of money and effort.

"It doesn't make sense. It would be cheaper to sell the gold and at the same time buy gold in closer locations," said Russ Dallen of Caracas Capital Markets.

Chavez's government insists the operation will not cost much, and that Venezuela's reserves will not be put at risk.

"People must be calm. Nothing is going to be lost, nobody is going to steal anything. This isn't a Hollywood movie," said the central bank's president, Nelson Merentes.

A senior government source involved in transporting the ingots, which amount to 90 percent of Venezuela's gold held abroad, told Reuters they will be shipped in several cargo flights beginning next month and ending before the New Year.

"The total cost of the operation will not exceed $9 million including transport, guards, insurance and reinsurance," the source said, without giving more details.

That price seems low, but the details of such deals are closely kept secrets for good reasons, and there are few precedents for moving gold on such a huge scale.

In 1936, Spain shipped more than 500 tonnes of gold to Moscow from Madrid at the start of its civil war. Historians say it paid 2.1 percent in commissions and an additional 1.2 percent for transport, storage and other costs.

BIG IDEAS, GRAND PLANS

Chavez announced the move in August as a "sovereign" step that would help protect Venezuela's foreign reserves from economic turbulence in the United States and Europe. Most of Venezuela's gold held abroad is in London.

It was also seen as another populist measure ahead of the election next October, when Chavez will seek another six-year term.

It will likely to be a hard fought and contentious vote, and some critics suggest Chavez is frightened by the chance of Venezuela's foreign reserves being frozen by sanctions -- as happened to his friend and ally, Libya's late Muammar Gaddafi.

By doing this, he also reduces the risk of any seizure of assets related to ongoing arbitration cases, including those linked to the nationalization of multi-billion dollar oil projects run by major U.S. companies.

Chavez's decision to repatriate almost all of Venezuela's international bullion reserves has shone a spotlight on the large proportion of the country's reserves that are held in gold, and the risks it runs if prices were to fall.

More than 60 percent of its international reserves are in gold, nearly eight times the Latin American average of just over 8 percent and twice that of the second highest in the region, Ecuador.

The move has also triggered arguments in the Venezuelan parliament, where opposition politicians accused Chavez of planning to sell off the ingots and spend the cash on his re-election campaign.

Merentes, the central bank chief, told reporters none of the gold would be sold after it was brought home, and that 10 percent of the reserves currently in London would stay there.

It is far from the first example of Chavez surprising the nation with a controversial grand plan.

He once proposed building a gas pipeline all the way from the Caribbean to Argentina, he ordered the exhumation of the bones of independence hero Simon Bolivar to investigate whether he was murdered, and he changed the time zone by 30 minutes to help children who wake up before dawn to go to school.

The gold move will have limited impact in financial markets.

"This issue should be absolutely irrelevant for the markets," said Alejandro Grisanti of Barclays Capital. "They are simply returning it to the custody of the central bank, because the Venezuelan government lacks trust in other institutions, and in the other governments of the world." (Editing by Daniel Wallis and Kieran Murray)