Precious Metals

MILES FRANKLIN If The Bank of England Defaults On Venezuela’s Gold, Who’s Next?

If The Bank of England Defaults On Venezuela’s Gold, Who’s Next? Written by Chris Marcus of Miles Franklin Recently there’s been growing attention surrounding Venezuela’s attempts to repatriate its gold from the Bank of England. To which so far the Bank of England has refused to return. Which creates some interesting dynamics that anybody invested in gold, or35

If The Bank of England Defaults On Venezuela’s Gold, Who’s Next?
Written by Chris Marcus of Miles Franklin
Recently there’s been growing attention surrounding Venezuela’s attempts to repatriate its gold from the Bank of England. To which so far the Bank of England has refused to return.
Which creates some interesting dynamics that anybody invested in gold, or any of the financial markets, would be well-served to be aware of.
Primarily in that if the Bank of England is refusing to return Venezuela’s gold, reportedly because of sanctions that the U.S. has placed on Venezuela, how safe would you feel if you were another country that had less-than-ideal relations with the United States and had its gold stored at the Bank of England as well?
If Venezuela Can't Get It's Gold Back - Who's Next?
“The Bank of England’s decision to deny Maduro officials’ withdrawal request comes after top U.S. officials, including Secretary of State Michael Pompeo and National Security Adviser John Bolton, lobbied their U.K. counterparts to help cut off the regime from its overseas assets, according to one of the people, who asked not to be identified.”
The article also goes on to mention that “U.S. officials are trying to steer Venezuela’s overseas assets to Guaido to help bolster his chances of effectively taking control of the government.”
While the Wall Street Journal is reporting how “the Trump administration’s attempt to force out the president of Venezuela marked the opening of a new strategy to exert greater U.S. influence over Latin America, according to administration officials.”
Keep in mind that in today’s world, it’s often a challenge to discern reporting fact from fiction. Yet certainly given the U.S. government’s history of regime change, there are legitimate questions raised by the current available details of the situation.
If the U.S. government is now essentially intervening in a transaction that’s between the bank of England and Venezuela, what other international transactions might U.S. sanctions attempt to intervene with in the future?
Certainly an expert on the political dynamics of the Venezuelan government I am not. And my guess is that Venezuelan president Nicolás Maduro is probably as likely to be involved in the same sort of government shenanigans that have become commonplace in many governments around the globe.
But aside from the idea that the United States could conceivably be getting gearing up for new areas of foreign intervention, while at the same time it just ran a $1 trillion deficit for the second year in a row, the entire situation creates a risky dynamic in the international trade and precious metals markets.
Economist and co-founder of Democracy at Work, Professor Richard Wolff mentions how:
The freezing of Venezuelan gold by the Bank of England is a signal to every country that has or may have difficulties with the US, [that they had] better get their money out of England and out of London because it’s not the safe place as it once was,” he said.
“One of the few things left for Britain is to be the financial center that London has been for so long. And one of the ways you stay a financial center is if you don’t play games with other people’s money,” he said.
“You can be sure that every government in the world is going to rethink putting any money in London, as they used to do, when they are watching this political manipulation with the money that they entrusted to the British. It is very dangerous for the world but for Britain particularly,” said Wolff.
He explained: “What the British are showing is that they can’t continue apparently to be the neutral place where you can safely put your money.”
Especially in the context where other foreign nations like Russia have continued to express their displeasure with U.S. sanctions and dollar devaluation. Which made it interesting to hear that:
“Russia vowed to “do everything” to protect Maduro against U.S. efforts to oust him as the Trump administration issued new sanctions against Venezuela on Monday, without elaborating what steps it would take.”
All of which is rather unfortunate. Because underneath all of the political sanctions and actions, is a country whose people appear to really be struggling with the collapse of the local currency.
“Losing the gold would be a significant blow to the country’s finances, undermining its ability to obtain hard currency crucial to importing items ranging from food and medicine to auto parts and consumer electronics.
Venezuela is struggling under hyperinflation now approaching 2 million percent annually. A broad economic collapse has fueled an exodus of some three million people since 2015.”
And now when Venezuela could most use the protection of its gold, the Bank of England has reportedly turned the cold shoulder and won’t even communicate with its client who entrusted it to ensure safe keeping of its savings.
“But those talks were unsuccessful, and communications between the two sides have broken down since. Central bank officials in Caracas have been ordered to no longer try contacting the Bank of England. These central bankers have been told that Bank of England staffers will not respond to them, citing compliance reasons, said a Venezuelan official, who asked not to be identified.”
Interestingly, a separate Bloomberg article reports that the UK government is not getting involved, and is leaving the decision up to the Bank of England.
“This is a decision for the Bank of England, not for government,” Foreign Office Minister Alan Duncan told Parliament Monday during an urgent question on Venezuela. “It is they who have to make a decision on this, but no doubt they will take into account when they do so, that a large number of countries across the world are now questioning the legitimacy of Nicolas Maduro.”
While I suppose it’s possible that this would lead some to question the legitimacy of Nicolas Maduro, as an investor and financial market analyst, it leads me to question the legitimacy of holding gold at the Bank of England.
Simply because it creates a dangerous precedent. Wherein any nation that does something that the U.S. government doesn’t approve of faces the possibility of losing its gold.
Rumors have circulated for years that the gold supply is tight, as metal has shifted from west to east. And that when any large international transactions are done, it’s often a scramble to source the physical metal.
Whether there is something deeper going on with the supply of gold that is leading the Bank of England to refuse the repatriation will only be known in time. If that does turn out to be the case, then we could be looking at a situation where the gold shorts will really be pressured.
Yet even if that’s not the case, just the precedent of this situation alone creates a new dynamic to further pressure the market. Because at least if I was a central banker of another nation with my gold stored at the bank of England, I would certainly be wanting it back ASAP.
It will be interesting to see how this situation unfolds. If you have any questions about this article or what’s going on in the gold market, as always you’re welcome to email me here.
The dynamics are stunning, and all continue to indicate a future with a substantially higher gold price. It will be fascinating to see how the path between now and that outcome unwinds, but this news comes as the latest data point that the existing structure of the gold market is on shakier ground than ever.
-If you have any questions about this article, what’s happening with the Fed, or the precious metals market, you’re welcome to email me here.
-To buy or sell gold and silver call Miles Franklin today at (1-800-822-8080).
-Or get Miles Franklin’s detailed report on why the price of silver is set to explode.
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