England to Venezuela: ‘No, you can’t have your gold’
I’ll bet the Brits don’t like to admit it, but there’s a few dark pockets of their history I’m sure they’d rather forget.
There was all that ‘colonising’ for a few hundred years.
Of course, we now know that really means raping, pillaging and spreading disease throughout a new land, only then to claim it as Crown land.
Then, there was the time they sold another country’s gold to the Nazis and accidently funded the Second World War.
Did you notice how I was banging on about gold last week?
This week probably won’t be much different.
I know what you’re thinking. How many times can one person talk about gold?
Well, for starters, it’s my favourite subject. Buckle in, because I have lots to say about the yellow metal.
More importantly, though, few people understand gold and even less own it.
Last year, I discovered that more people own bitcoin than physical gold.
Turns out, roughly 1% of Australians own some bitcoin.
Less than half that own physical gold bullion.
Through all my years of writing about gold, I’ve often found most people don’t own gold because they don’t know why they should and where to start.
Making up for the past or controlling the future?
Venezuelan President Nicolas Maduro has asked the Bank of England to return the 14 tonnes of gold it has stored over there.
Especially given that more and more central banks are repatriating their gold back home.
Except, the Bank of England said no.
According to BullionVault, the BoE is refusing to transfer Venezuelan gold back home.
Why would the BoE refuse to return Venezuela’s gold?
That’s the big question for most gold analysts right now.
It could be a case of making up for the past and being on the right side of history. (Or, as I’ll show you in a minute, it could be the ultimate power grab.)
You see, the Bank of England ‘accidently’ sold Czechoslovakia’s gold to Hitler’s regime in 1939 24 hours later, Germany invaded Czechoslovakia.
All that repatriated Czech gold helped fund the German’s Second World War efforts.
Throughout the 1930s, as fears of the Nazi movement grew, countries like France, Italy and Czechoslovakia moved their gold storage to what was the biggest gold storage point at the time.
In 1936, the National Bank of Czechoslovakia sent a wire transfer to France and the Bank of England, warning them that any requests to transfer gold out of London would be made under duress and should be ignored.
So, when the BoE received the request, it did ignore it.
Except, near the top of this pile of bureaucrats running the BoE sat a man named Montagu Norman.
Norman was a long-time advocate of the gold standard. He’s famous for refusing to remove the gold backing from the pound when the global markets crashed in 1931.
And his ego never quite recovered from the BoE ditching the gold standard when he was holidaying in Canada, something he was never consulted on.
Norman, still bruised from being ignored, was also a stickler for detail.
The regulations under the Bank of International Settlements — the overseer of all central bank gold purchases — is that no one is supposed to know whose gold is in storage.
And through a bunch of wires sent back and forth between Switzerland and England, Norman insisted that anonymity of the gold in storage is more important than whose gold it really is.
So, the transfer was done.
Some six million pounds of gold were sent back to the Czechoslovakia, and Germany marched on in the next day.
Germany then sold all of its ‘new Czech’ gold all through the Bank of International Settlements. And those new millions went some way to giving the world another six years of devastating conflict.
Those who have the gold make the rules
And this brings us to Venezuela.
The small South American country is said to have the world’s largest confirmed oil reserves, with 300 billion barrels of oil.
More than two million people have fled Venezuela as the decisions of President Nicolas Maduro have eroded any value of wealth.
This is the very same country whose inflation rate hit an all-time high of 833,997% in October. The IMF reckons consumer inflation will reach 10 million per cent by the end of 2019.
It’s fair to say that, right now, the Bank of England is a little gun-shy.
Venezuela’s previous government, led by Hugo Chavez, brought all the gold home in 2011 to avoid economic sanctions.
He then shipped most of it back a couple of years later to use as a deposit when Venezuela needed a loan.
Venezuela has had a series of socialist governments, which have consistently left a country with cast oil riches poorer.
The real question we should be asking — like Montagu Norman did back in 1939 — is just how much power should a third party have over another country’s gold stores?
At the end of the day, the Bank of England is meant to remain a trusted third party. Not the arbiter of which governments it does or doesn’t like.
Maduro may have crippled his people financially.
But refusing to release a country’s gold is an economic sanction.
It’s just another way to get one political leader to bow to the pressure of other political leaders’ wishes.
The Bank of England has just taken a terrifying overstep. And it’s a blatant abuse of the trusted position it holds.
Until next time,