Hugo Chavez Nationalizes Venezuelan Gold Industry, Demands 211 Tons Be Returned From Abroad - JPMorgan, Bank Of England & ETFs Scramble For Physical Metal

Daily Bail

 
Anyone holding gold miner Rusoro is panicking.

Details from Reuters

Toronto-listed Rusoro, owned by Russia's Agapov family, is the only large gold miner operating in Venezuela.  It produced 100,000 ounces last year.

The gold industry will be just the latest part of the economy to be put under state control by the socialist leader, who said he would issue the necessary decree in the coming days and called on the military to help control the sector.

"I have here the laws allowing the state to exploit gold and all related activities ... we are going to nationalize the gold and we are going to convert it, among other things, into international reserves because gold continues to increase in value," Chavez said in a phone call to state television.
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WSJ

CARACAS—Venezuela plans to transfer billions of dollars in cash reserves from abroad to banks in Russia, China and Brazil and tons of gold from European banks to its central bank vaults, according to documents reviewed Tuesday by The Wall Street Journal.

The planned moves would include transferring $6.3 billion in cash reserves, most of which Venezuela now keeps in banks such as the Bank for International Settlements in Basel, Switzerland, and Barclays Bank in London to unnamed Russian, Chinese and Brazilian banks, one document said.
Venezuela also plans to move 211 tons of gold it keeps abroad.
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The problem for Jamie Dimon and JPMorgan is that they hold only 10.6 tonnes of gold, and all of it belongs to Venezuela, though they have pledged approximately 100 times that amount in various paper markets.

ETF News

While Venezuela is a relatively minor player on the world stage, this could be a big game changer here in the United States because one of the banks that holds 10.6 tons of Venezuela’s gold is none other than JP Morgan.  In a recent audit of JP Morgan’s holdings it was reported that they held 338,303 ounces of gold or roughly 10.6 tons.  While this is a modest size deposit it is sure to cause some jitters at JP Morgan as they scramble to find the replacement gold which has already been pledged about 100 times across various paper markets to ETF’s like the SPDR Gold ETF (NYSE:GLD).
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Bloomberg

Venezuelan President Hugo Chavez ordered his government to repatriate $11 billion in gold held in banks abroad to safeguard the country from the economic crisis and said he’ll nationalize the local gold industry.

Venezuela has about 211 tons of its 365 tons of gold reserves held abroad at institutions including the Bank of England, JPMorgan Chase & Co. (JPM), Barclays Plc (BARC), Standard Chartered Plc (STAN)and the Bank of Nova Scotia (BNS), according to a government document.

“We’ve held 99 tons of gold at the Bank of England since 1980. I agree with bringing that home,” Chavez said today on state television. “It’s a healthy decision.”

Chavez, who has said he wants to eliminate the “dictatorship” of the U.S. dollar, has called on Venezuela’s central bank to diversify its $28.7 billion in reserves away from U.S. institutions. Some cash reserves, which total $6.3 billion, will be shifted into currencies from emerging markets including China, Russia, Brazil and India, central bank President Nelson Merentes said today at a news conference.

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A First Ever Default? Closing the Gold Window, Forty Years On

Triple Crisis
Gerald Epstein

During the recent “Debt Ceiling” debacle, many warned that the failure to lift the debt ceiling would lead to a “first ever” US default and to numerous financial catastrophes, including the demise of the U.S. dollar as the world’s reserve currency.

“First Ever Default?” Think again.

Forty years ago this month, on August 15, 1971, President Nixon “closed the gold window”, refusing to let foreign central banks redeem their dollars for gold, facilitating  the devaluation of the U.S dollar which had been fixed relative to gold for almost thirty years. While not strictly a default on a US debt obligation, by closing the gold window the US government abrogated a financial commitment it had made to the rest of the world  at the Bretton Woods Conference in 1944  that set up the post-war monetary system. At Bretton Woods, the United States had promised to redeem any and all U.S. dollars held by foreigners – later limited to just foreign central banks — for $35 dollars an ounce. This promise explains why the Bretton Woods monetary system was called a “gold exchange standard” and why many believed the US dollar to be “as good as gold”.  When Nixon refused to let foreign central banks turn in their dollars for gold, and encouraged the devaluation of the dollar which reduced the value of foreign central bank holdings of dollars, the Nixon administration effectively “defaulted” on the United States’ long-standing obligations ending once and for all the Bretton Woods System. (See the useful history by Benjamin Cohen and Fred Block’s masterful history of Bretton Woods, The International Economic Disorder published University of California, Berkley Press.)


The move by Nixon was designed to restore US competitiveness that had been harmed by the reconstruction of Europe and Japan in the decades following the Second World War, and to improve his re-election chances by increasing employment, profits and exports.  By the cunning of history, though, while the Nixon “default” was designed to restart the American manufacturing machine, instead it set into motion the forces that would lead to the dominance of finance, the hollowing out of American manufacturing, the massive destruction of decent employment — and eventually to the Crash of 2008.

The dominance of finance resulted from the dramatic political and economic changes engendered by, as Naomi Klein puts it, the rise of disaster capitalism, which took a very specific financial form. The oil “shocks” and stagflation of the 1970’s brought about the rise of Volckerism, Thatcherism and Reaganism, leading to the policies of sky high interest rates, which undermined the New Deal structures of finance.  The extraordinarily high and unstable interest rates created enormous need for new hedging instruments and opportunities for new speculative financial practices. They also imposed enormous losses on financial institutions and financial elites.  But the rentiers and financiers did not just sit there and take it: they fought back (see Gerald Epstein and Arjun Jayadev in Financialization and the World Economy) and  pushed for financial de-regulation to let them compete in the new environment. One financial crisis led to another, from the third world debt crisis to Long Term Capital Management. After each crisis, finance pushed for more bail-outs and more financial de-regulation and won.