Things That Make You Go Hmmm.... Such As A Venezuelan Dictator Bringing Down The Global Gold Cartel

Tyler Durden's picture

A few days ago we penned "As Chavez Pulls Venezuela's Gold From JP Morgan, Is The Great Scramble For Physical Starting?" in which, logically, we wondered if the unwind of the great gold cartel, whose purported price manipulation has always resided in the domain of paper, or confidence-based, precious metals, may have started from the most unexpected source: Venezuelan dictator Hugo Chavez who just announced that he will not only nationalize the country's gold industry but reclaim his physical gold (however much of it may exist) from custodians such as JP Morgan and Bank of Nova Scotia. The practical implications of this move are substantial- since then gold has seen record high after record high. Whether one attributes these moves to Chavez, or to yet another global "risk-flaring" episode is unclear. Luckily, Grant Williams, author of the always entertaining "Things That Make you Go Hmmmm", provides some very fascinating observations on this very interesting topic...

From the full note (presented below):

To sum up:

  • It is common practice for most Central Banks to hold part of their gold reserves overseas in ‘gold trading centres’ (read London and New York)
  • One of those Central Banks - that of Venezuela - wants its gold back
  • That means that a group of banks (mainly in the UK and the USA) who are supposed to have that gold in their vaults need to GIVE it back...
  • ...which in turn could potentially trigger a race to repatriate national gold holdings
  • Neither Fort Knox nor the Federal Reserve (the world’s two biggest gold depositories) have been independently audited in recent times
  • The status of the gold held in the Bundesbank (home to the world’s third-largest hoard) is somewhat unclear
  • The practice of leasing gold by Central Banks has been going on so long that it even predates the time when Alan Greenspan advocated sound money
  • The gold ‘physical market’ is approximately 100 times the size of the amount of actual underlying metal by which it is purportedly backed
  • The top four bullion banks, or ‘commercials’ on the COMEX continue to run what we shall politely call ‘significant’ short positions (chart above)

In the three trading sessions since Chavez made his announcement on August 17th, gold has added almost $100, coming within a whisker of $1,900 before settling back at another record weekly close.


Market weakness? Maybe. Fear of further problems in Europe? Quite possibly. Continuing disgust with the world’s fiat currencies? Highly likely.


The beginning of a race amongst the world’s Central Banks to grab physical gold? Now THAT would be something to see...

Full note:

Hmmm August 20 2011

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DarthVaderMentor's picture

As much as I detest him, bravo for this move. We'll find out soon enough who's stronger: Despots elected by hiding behind a facade of communism and a controlled economy or crooks, fraudsters and banksters hiding behind the facade of democracy and alleged "free markets".

Upswaller's picture

Silly question for those of you with more capable brains than mine.....


By secretly purchasing massive amounts of precious metals,  and quietly minting a new PM-based-currency, could a nation begin distributing them as "real" money at an opportune moment,  swaying the world away from the fake US dollar?  How would a nation best go about this and could it work, stealing from the US its' reserve status? 

(Not that Chavez could do it, but it makes one wonder in general.


guidoamm's picture

Mr Bernard Von Nothaus is being prosecuted for doing just that... Legally it could be argued....

spiral_eyes's picture

the dollar will be broken by the fact that it is backed by the thin air coming from bernanke's mouth. this is the start of the shakedown. brace yourselves, bitchez 

Whalley World's picture

Even thin air has value, however, debt.... not so much.

strannick's picture

At least the Venuzeulan dictator admits gold is the ultimate currency. The American dictators are still trying to keep that a secret.

Turd Ferguson's picture

The answer is YES. Especially when said dictator is allied with Russia and other countries who would prefer an end to American hegemony.

UGrev's picture

And this to me is the only reason why they are doing this; adding to its (the requests) legitimicay by nationalizing gold mines. If he didn't do this, it would probably seem more obvious that it was a financial attack rather than a dicKtators agenda. But, I honestly think he's doing us a favor. 

midtowng's picture

The definition of a dictator requires that Chavez NOT be elected in a free and fair election certified by international observers.

EscapeKey's picture

Define "free", "fair" and "international observers", please.

As an added bonus question, how "fair" are elections exactly, when only 2 candidates have got the necessary financial backing to deliver their message?

Rylie's picture

when was the last free and fair election in the US??

They are bought and Payed for.... George W Bush ring a bell?

Badabing's picture

"By secretly purchasing massive amounts of precious metals,  and quietly minting a new PM-based-currency"

I don't think it can happen without a reset in the price of gold>

Popo's picture

Sigh.  Yes, the dollar is overvalued.  Yes gold is going to go to the fucking moon.  BUT:

No. The dollar is not "fake".  The value of the dollar is exactly the value of the dollar currently.  No more, no less. 

To say that the dollar is backed by "nothing" is really just ignorance.  The US petrodollar empire is based on control of the oil trade (among other markets) which in turn is defended by:  the most powerful military in the history of the world, an intricate network of military bases (not coincidentally clustered in the oil producing region of the world) and various well-armed proxy states.  (Also non-coincidentally located in the oil producing region of the world).

The dollar is a measurement of power.  And that power is used to control the world's energy supply. (It's amazing that most people don't know this... as if 3 simultaneous wars aren't enough evidence).   The power of the US *is* unquestionably in decline.   And it is most definitely being challenged, slowly but surely by rising powers.  But to suggest that the petrodollar empire is dead, or is nothing but a paper-tiger would be idiotic. 

And by the way -- THE REAL REASON CHAVEZ IS BRINGING HIS GOLD HOME is not because he's worried about the banking system.  He's worried that he's the next Libya.   As US power wanes,  the US will become increasingly militarized in an effort to seize all the world's oil.  Chavez watched in horror as Qadaffi's international accounts were cut off.   Qadaffi *could* have held off indefinitely if he'd had the capital to arm himself well.  (He could have made the US and Europe pay an *extremely* high price for their aggression).  But because Qadaffi's financial capacity was kneecapped -- Qadaffi is going to lose.

Chavez will not make the same mistake. 

The Venezuelan re-patriation of gold has nothing to do with this "Is there any gold in Fort Knox" silliness, and everything to do with the fact that Chavez knows he's next.


equity_momo's picture

+ log in
Very well stated popo. Many fail to see the difference between the USD and the Zim Dollar.

VonStrakovich's picture

That's an interesting insight Popo. It sounds less likely from the comfort in the mountains of TN; but if I were the dictator of Venezuela I would be thinking about it every waking hour of the day.

cheesewizz's picture

Remove Popo from the Lemmings list... Original thinker at work.

DarthVaderMentor's picture



That may be the reason he's bringing the gold back to Caracas, but the effects of this action may turn out to be a nail in the current administration's economic coffin and the trigger for massive prosecutions of fraud in the so-called "Democratic free markets".

I would be ironic that Chavez, in a defensive move to protect himself as a "nuveaux communist" who is actually a run of the mill 2-bit despot who was smart enough to rightfully be elected to power by espousing the con acting like a true virulent anti-American colonialist political platform, actually decimates the bankster propped American and European free market economic systems by exposing a massive fraud of over inflated and fraudulently accounted for free world bank held gold inventories.

It's unintended consequences of decisions by the free world powers that create ironies like this that make turning points in world history.


vamoose1's picture

awesome,  your last  sentence.  kudos

11b40's picture

Yes, and if Chavez needed any hard evidence, we are providing plenty with our troops now using 7 military bases in Columbia.  Narco traffic, indeed.

Whalley World's picture

I follow the line of thought that Hyperinflation is a psychological phenomenon whereby when, not if, the people realize their phiat is phoney, they will buy what they can to unload their tiny cotton sheets of illusion,

Pain Train's picture

100% agree on the Chavez/gold connection. But the part on the dollar being intrinsically valuable is completely wrong. By this logic, we could print an infinite number of dollars, but so long as we maintain military advantage, the dollar will remain valuable. Try telling this to the Roman Empire. Oh yeah, they suffered economic collapse due in no small part to economic mismanagement IN SPITE OF their military power. 

I'd start with Admiral McMullen's recent statement that the biggest threat to national security is the national debt. Why would this be the case if the dollar was "backed by American power"??? Because at some point, the dollar will collapse because of continued debasement, and when it does, the money needed to fund our military will be worthless. 

To say that the dollar is worth something because it's backed by US military power is wishful thinking and not supported by fact.

mt paul's picture


also removed his paper assets 

out of western banks last week

deposited in BRIC banks ..

after seeing LIbyan  paper assets get trashed

while held in western banks ..


gonna be an interesting week ..

Sudden Debt's picture

There's this one saying that comes from the Romans that still stands:

The outcome from any conflict doesn't come from the one with the biggest army but with the biggest gold chest.

Whatever the size of the militairy aparatus the US now has, it has the be maintained and paid for. Obama now knows that the militairy of the US is some of the only things that keeps the dollar up but to keep it up he needs to find money for it.

The money isn't a problem. As long as the rest of the world and the militairy itself keeps believing in the dollar.

There have been plenty of empires in the world. They all fell when they failled to fund their militairy. The USSR is the latest good example for it.



DrunkenMonkey's picture

Aaah, the good old days when mercenaries were plentiful, oh wait, they are again now ..

dwdollar's picture

"And by the way -- THE REAL REASON CHAVEZ IS BRINGING HIS GOLD HOME is not because he's worried about the banking system. He's worried that he's the next Libya."

I completely agree with you up until this point. I think he's got two good reasons and he knows both of them. Chavez may be a lot of things, but he's not a fool. These third world leaders like Chavez and Qadaffi have to be smart in order to survive. The only reason they keep the gold offshore is to have it safe in the event of a revolution and loss of power. They can simple flee the country and retire somewhere. However, Qadaffi was betrayed and had no where to run. Chavez now knows the risks of keeping it offshore outweigh the risks of keeping it in the country.

Regardless, his actions may precipitate something bigger, whether he realizes it or not.

destiny's picture

Yes nice points, but then again Chavez may not live very much longer in the first place (chemio poisonned), so why would he care to be next ?

EscapeKey's picture

Chavez is not Gaddafi. The Chinese have made infrastructure investments in Venezuela, and Chavez has openly discussed the possibility of selling yet even more oil to the Chinese.

An attack on Venezuela would from the perspective of the Chinese, be considered an openly hostile act. This goes for Iran as well, btw.

Oh, and a minor point;

"the most powerful military in the history of the world"

Redundant. Every "most powerful military in the world" has always been "in the history of the world". It's called progress. Roman armies wouldn't last 5 minutes vs an 1890'es British army.

Popo's picture

I'll take your point on redundancy. That is of course, true.

Re: the Chinese: they had huge infrastructure deals in Libya too. That arguably was the reason for the acellerated invasion.

pazmaker's picture

Tell me where china doesn't have it's hands in the pot?

your-a-peon's picture

agreed , but will they actually let him have his gold being that he is in the firing line of the empire. russia is backing chavez yes, but i could still see some hiccup somewhere just before he is able to take delivery.

Save_America1st's picture

Turd is right...and also know this: Ghadaffi also has/had a massive amount of gold in his possession.  It was said that he was about to re-establish the gold Dinar (Islamic money) in North Africa.  It would be used for trade instead of the U.S. petro-dollar.  Here's one example of an article on that subject:

We aren't taking Gadaffi out because of humanitarian reasons and not even for any of his oil.  We're taking him out because he wasn't going to play ball anymore.  Many say Saddam Hussein was also getting ready to drop the petro-dollar and thus was finally taken out because he wouldn't play ball anymore either. 

Chavez has made big allies with China and Russia and is now arming himself with big-time missles.  He knows we took out Saddam and that we're about to take out Gadaffi for the same reasons, and so he's building up to defend himself. 

Things are gonig to get really interesting from here on out...

Keep stackin' the phyzz folks!!!

disabledvet's picture

Well...thank God for 'merica again! Now shut up Chavez and eat a pringle. (it's all your allotted for this week. Sorry el jeffe.) and here comes your gold in 5..4..3..2..1....

Temporalist's picture

Jim Rickards has commented and reported on that exact scenario as well as

Dr. Porkchop's picture

If a country were to bring out a PM based currency, the first thing I would do is fly down there and buy as many dollars as I could then demand conversion to gold.

The fastest way to guarantee all the gold flows out of your country.

msamour's picture

The use of a currency is based on confidence, and not really in the inherent value of the currency itself. In order to achieve what you describe, said entity trying to secretly issue the new currency would have to convince everyone using the currency they are trying to replace to stop using it.

There is also next to no incentive to actually issueing currency that contain precious metals because then it will eventually cease to circulate as the "smart people" will begin to hoard it, and melt it for its precious metal value. This has actually happened in the past, I have heard stories of Chinese Americans mailing home to China hundreds of rolls of old coins containing silver to be melted over there.

For a new currency to work and for a real change in paradigm, there are a few things that need to happen. 1) The people have to start understanding the level of corruption occuring in their respective countries. 2.) The people have ti understand that the tax system in each country is set up to perpetuate the system of corruption. 3.) The people must cease to participate in the economic system by massively converting their fiat confidence based currncies into precious metals, and non luxury/non vanity based commodity they will actually keep at home.

There are more requirements that could precipitate a currency collapse such has hyper-inflation, and price controls, and rationing, but these are actually top down kinds of event. What is needed id bottom up events that the ruling elite never see coming.


I believe we are starting to get to that point. It will be interesting to see if the elites of the world can manage to keep control, or end up swinging on ropes.

smlbizman's picture

first of all my guess is chinia is behind this move....but my questions are..

1} what happens if he does not get his gold?

2} will others be taught a lesson , don't ask?

3} will others wise up and demand their gold back?

chavez is so minor they could just put him on hold or let the machine get it.....

Sudden Debt's picture

The answer is pretty simple:

If he doesn't get it, everybody will doubt the existence of the Fort Know Gold stash. Thus panick will brake out and everybody will want it all back at the same time. Thus a gold rush will form. Thus a dollar crisis beyond belief making the dollar drop 99% in a matter of months.

Nop, they'll give him the gold. But the question will be, who's gold will it be.


guidoamm's picture

Hong kong has already officially asked and, I believe, received their stash... Last year there were rumors that Germany had asked their stash to be returned too..

Lest we forget what finally brought about the abrogation of bretton woods in 1970.... Merci m. Degaulle.... Halas debt based fiat money survived that blow by means of the floating exchange rate mechanism....

Can we finally drive a stake through dbfm now?

iDealMeat's picture

This could get pretty interesting. If Chavez demands the gold and the dirtbags at the Morg can only offer inflated FRNs, then Chavez could threaten to turn off the Oil Spigot..  He's got the strong hand on this one..   Game on!

DaBernank's picture

Almost a strong hand... he needs to sell the oil to pay for the operation of his country. So he sells to somebody else who brings it into the fungible market.

SystemsGuy's picture

I cannot imagine that the Chinese do not have representatives sitting in Caracas right now ready to write a check the moment he sells. He will not have problems selling oil.

snowball777's picture

You do know that Ft. Knox and JPM have independent vaults, right?

StychoKiller's picture

Better questions:  How much tungsten is in those vaults, and WHO owns it?

midtowng's picture

I agree. If they can't or won't give Chavez his gold back then everyone will doubt how much gold there is. Thus setting off a scramble for it.

Of course if they give his someone else's gold, and that someone else also wants their gold, then that will set off an international scramble for gold as well.

StychoKiller's picture

Looks like it's time for an audit (hundreds of INDEPENDENT audits!)

New World Chaos's picture

I have a feeling the shipment will be sunk.  If not, then they will give him Gaddafi's gold.  Just in time.  If Chavez really wants to kick the West in the nuts, he could then turn around and tell the world we gave him tungsten!  Who has more credibility at this point?

Sudden Debt's picture

It never happened before righ?


Morgan Stanley DW Inc.

New York, NY: (Jun-12-07) A class action lawsuit filed by brokerage clients against Morgan Stanley alleged that the financial firm told clients it was selling them precious metals that they would own in full. Morgan Stanley said it would store the metals, but made no investment specifically on behalf of those clients, or made entirely different investments of lesser value and security. The suit was filed by Selwyn Silberblatt in August 2005 on behalf of himself and others who bought precious metals, gold, silver, platinum, and palladium in bullion bar or coins, from Morgan Stanley DW Inc. and its predecessors and paid fees for their storage. The suit covered investors who did so between February 19, 1986 and January 10, 2007.

In a settlement reached, Morgan Stanley agreed to pay $4.4 million to settle the class action lawsuit. The company did not admit to any wrongdoing, but stated that the settlement was made to avoid the costs of protracted litigation. [REUTERS: PRECIOUS METALS FRAUD]


Strange nobody ever mentions this one anymore :)