Venezuela Demands Gold From Bank of England

Well, this should shake up the paper gold market. GLD has it's gold stored in the vaults of the Bank of England. But the real problem here lies under the headlines. Most of the Gold in the vaults of the Bank of England and many other vault banks is often pledged (leased) out to paper markets about 100 times. Can't let good gold sit around, gotta keep it working, which is great for the banks until the clients demand it returned. Oooops!, the physical gold is long gone. This should also shake up JP Morgan who is one of the 5 vault banks in operation. Today, JP Morgan showed only 338,303 ounces of physical gold in storage, or 10.6 tons of gold. I wonder how much Venezuelan gold in in their vaults? This, I would bet, is causing a lot of hand wringing at JP Morgan tonight. In the US, the CME has been having a hard time getting ahold of physical gold and Silver for awhile and Venezuela's demand for their physical gold returned to them will cause more pressure on the metal markets to deliver physical to their clients. Why is this important? Because with Venezuela pulling 99 tons of gold off the market, The B of England will have to unwind 9900 tons of paper gold!!! Should be interesting to see how this effects the gold market.

Venezuela to Repatriate Up to $11 Billion Gold Reserves From U.S., Europe

By Daniel Cancel and Corina Rodriguez Pons - Aug 17, 2011 2:05 PM PT

Venezuelan President Hugo Chavez said he will move forward with a proposal to repatriate as much as $11 billion of gold reserves held in the U.S. and Europe as part of a plan to shift assets away from American institutions.

Venezuela will transfer 99 tons of gold from the Bank of England to the South American country’s central bank, Chavez said today on state television. Venezuela also has gold at JPMorgan Chase & Co., Barclays Plc, Standard Chartered Plc and the Bank of Nova Scotia, he said.

“It’s a healthy decision to bring the gold back to Venezuela,” Chavez said.

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. Cash reserves will be shifted into currencies from emerging markets including China, Russia, Brazil and India, Central bank President Nelson Merentes said today at a press conference.

To contact the reporters on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net; Corina Pons in Caracas at crpons@bloomberg.net

To contact the editor responsible for this story: Bill Faries at wfaries@bloomberg.net