As the gold price touched $1,890 per the ounce in London trading today, persistent doubt of the consensus forecast for U.S. and Europe economic growth has weighed down equities, lifted bond prices, and soared gold, as traders scramble in and out of positions to suit renewed uncertainty and the growing distrust of the Fed as well as European and U.S. policymakers.
Adding to the stack of the most recent gold-bullish news, which has been streaming in nearly daily now, comes Hugo Chavez’s request for a repatriation of Venezuela’s gold reserves from the Bank of England.
CEO of Hinde Capital, Ben Davies, today told King World News he believes Chavez’s move to bring 365 tons of gold reserves back to Venezuela could result in an explosive move in the gold price, as data suggest that the gold market has operated equivalently to a banking fractional reserve system since 1971—and a highly levered fractional system, at that.
“There was a game changer event yesterday: Chavez – the proverbial thorn in the West’s side – ruined the gold-bears’ picnic, “ stated Davies. “So what? I hear you say. Well I believe this is significant. Chavez holds 365.7 tonnes of gold overseas, mostly in Western Central Bank vaults, such as the Bank of England. Some 100 tonnes of Venezuelan gold is held there.”
“The question is: do these vaults still have all the gold?” Davies asked rhetorically, who now targets gold at $2,100 on this move.
In fact, the gold may not be there, according to Gold Anti-Trust Action Committee, who has published numerous articles showing the steep ratio between “paper” gold and the physical. Davies said that the global gold market’s fractional reserve system “means each troy ounce has been lent or swapped out many times over, and should gold holders request the return of their gold en masse, we could get a proverbial ‘gold bank’ run.”
If Chavez’s move triggers a gold run, or not, it most certainly will spark at least some fear into those traders seeking an empty chair before the music stops in the gold market. Force majeures at a time of panic to gold will leave wealth exposed to the threat of cliff-dive devaluations and bizarrely-priced physical gold ounce bars, a possible scenario that could turn rich people into poor ones, and vice versa.
Chavez appears nervous about the situation in the gold market, and may trigger other countries to repatriate their gold from Western entities, too, in another bullion bank run similar to the run on Ft. Knox in the early 1970s.
Even the U.S. dollar apologist of the gold market Dennis Gartman of the Gartman Letter is getting skittish about the possibility of a flashpoint in the currency markets.
“Gold is strong in any and all currency terms, and it is now entering that stage when prices go parabolic,” Gartman stated in his Gartman Letter.
Flight out of the U.S. dollar and euro won’t have many paths to left to safety, as banking officials of well-managed currencies fight back the stem of appreciation. A recent survey among Swiss reveals a majority of respondents alarmed by the rise in the franc, and fear a string franc will devastate exports of Swiss-made goods.
“You have a look at some of the other safe-haven assets that investors were looking at, the Swiss franc and Japanese yen,” Fat Prophets resource analyst David Lennox told Bloomberg. “Authorities there have taken steps to try and curb the rise in those particular currencies. That’s probably pushed more investors into gold.”