Maduro loses access to gold in London

The British court has private that Venezuelan President Maduro is not allowed to lay claim to the gold at the Bank of England. Venezuela still has more than €1.5 billion worth of gold bars there, which belong to the national gold reserve. However, according to the British judge, Maduro is not the legitimate president, because the elections would not have been fair. In 2019, the United Kingdom, along with about sixty other countries, designated opposition candidate Juan Guaido as the legitimate president. Therewith Belongs he also relinquishes control of the gold reserves, the British court ruled this week.

President Maduro is still firmly in control in Venezuela, while opposition candidate Guaido has hardly any political power. Yet much of the Western world has sided with Guaido. These countries are trying to overthrow Maduro's government with sanctions, but so far they have not succeeded. The president still enjoys support among part of the population. He can also rely on strong allies such as Russia, China, Iran and Turkey who still want to do business.

Maduro loses access to the gold

With the ruling of the British court, Juan Guaido will gain control over the remaining gold at the Bank of England. He can do this Selling gold, but he has no intention of doing so. He wants to keep the gold out of the hands of Maduro, who wants to sell it to plug the holes in his budget. The economy of Venezuela has been doing very badly in recent years. Not only because of the low oil price, but also because of bad government policy and economic sanctions.

Hyperinflation has rendered Venezuela's currency virtually worthless. There has also been little investment in the oil sector, which has reduced export revenues. President Maduro claimed that he wanted to sell the gold to fight the coronavirus and invest in healthcare, but that argument did not impress the court. Maduro also regularly sold gold before the coronavirus outbreak.

How safe is the gold at the Bank of England?

As a result of the British court's ruling, the British gold vault remains closed to Maduro. That may ultimately be a good thing for the Venezuelan people, but not for the Bank of England. Dozens of countries keep part of their gold reserves with the British central bank, because of its reputation and the network effects of central storage of gold. The Bank of England holds more than 400,000 gold bars in its vaults. That good reputation has been dented, now that the central bank does not appear to be immune to political pressure.

This example from Venezuela is a warning to all countries that hold gold in London. Sanctions imposed by the United States, which are taken over by the United Kingdom, could result in the Bank of England denying access to the gold. This counterparty risk is a good reason for countries to keep a larger part of the gold supply at home.

Maduro has sold a lot of gold in recent years (Source: Trading Economics)

This contribution was made from Geotrendlines