|
Markets
were abuzz last week with Chavez’s recall of Venezuela’s gold
reserves not currently held in Caracas. Bulls are excited by the thought that
withdrawing some 150-200 tonnes from the Bank of England and the bullion
banks will force a bear squeeze on the LBMA, where gearing between the
physical and paper markets are assumed to be 100 to 1. This stretches the
relationship between paper gold and physical gold even further. They are also
excited by the possibility that others might follow Venezuela’s
example.
These concerns are real and
should not be dismissed lightly, and the announcement could not have come at
a worse time for LBMA members, who also face being caught up in a European
banking crisis. Fear dominates, but the real trigger for this market emotion,
and therefore its outcome, is global politics. Chavez is not just recalling
his country’s gold to protect its integrity, he is waging an idealist’s
war against the capitalist system and the US in particular. This is why he
has threatened to move gold and foreign reserves to the countries he says he
trusts, principally Russia and China, and why he is proposing to nationalise
Venezuela’s gold mines.
He has picked the capitalist
system’s weakest point. He has been told by his central bank that the
Fed, the BoE and the Bank for International Settlements hold gold for the
whole central banking community in the main trading centres, and that much of
this gold exists only as a ledger entry and is not backed by physical metal.
Whether or not Venezuela’s gold is held in these fractionally-backed
sight accounts, or in earmarked accounts where the gold is held separately,
we do not actually know; but there is little doubt that this move is designed
to encourage other central banks to demand that their gold is also
repatriated.
Chavez has a point. It is a fair
bet that the International Monetary Fund’s 2009 sales of 212 tonnes of
gold to other central banks are held in sight accounts as a condition of
sale. India, Mauritius and Sri Lanka, who bought this gold, must be very
nervous. Interestingly, India and Sri Lanka are also associated with the
Shanghai Cooperation Organisation, which was set up by China and Russia with
the eventual goal of establishing an Asian supranational state.
This little-known connection is
extremely important. The SCO even
has a website. The
central banks of its member states, observer states and dialogue partners are
nearly all buying gold, overtly or covertly. This is more likely to be a
co-ordinated economic attack on the West than just a purely random event.
Until Chavez’s
intervention, China and Russia – who run the SCO – were gently
turning the screws on the gold market: Russia by announcing regular purchases
and China by encouraging its citizens to buy. They appear to have put the
word about through the SCO that gold will have an important role in the
SCO’s future, and those involved should have some. This is a world
Chavez wants to be part of, and by removing his country’s gold from
capitalist markets he is declaring his credentials.
Underlying this extreme
socialist action is the Marxist belief that capitalism will destroy itself.
Chavez believes it is his duty to give it a helping hand.
Alasdair
McLeod
Article originally published at Goldmoney here
|
