Venezuela can't get gold out of the UK

The government of Venezuela is still waiting for gold to be held by the Bank of England. At the end of last year, Maduro's government announced its plans to repatriate part of its gold reserves from London, but that is not an easy task. Even the visit of the Minister of Finance and the Central Bank has so far yielded nothing.

Venezuela still has more than $550 million worth of gold in London. Most of it was collected by former president Hugo Chavez, but a small part is still in London. Maduro's government wants the gold back, because it allows it to import food. Hyperinflation has rendered the domestic currency virtually worthless, while access to dollars is limited due to sanctions.

More gold in London

The gold reserves in London, which Venezuela currently does not have access to, have recently grown even larger. In December, the country got back the 17 tons of gold it had lent to Deutsche Bank a few years ago. The only problem is that this gold was also released in London and therefore Venezuela does not have access to it. 

By Settlement of this gold swap doubled Venezuela's gold reserves in London to 31 tons. That's a setback for Maduro, who sold a substantial amount of gold to Turkey in exchange for food over the past year. That will be a lot more difficult now that almost a quarter of her gold reserve is no longer within reach.

How safe is the gold supply?

Many central banks store part of their gold reserves abroad, for example with the Bank of England or the New York Fed. Some countries do this to cut costs, while others do so for diversification. In the past, this was rarely seen as a problem, but in recent years more and more countries have chosen to withdraw their gold reserves.

The example of Venezuela shows how important it is to keep part of your gold supply in your own country. The precious metal is a form of reserve without counterparty risk, but as soon as you let someone else manage it as a country, that risk returns.

It is noteworthy that the Bank of England is not yet releasing Venezuela's gold. A central bank should be completely independent, but that is not the case. This example should give other countries pause for thought. Is the gold supply safely stored? Or should more countries follow the example of the Netherlands, Germany, Austria and Switzerland by recalling part of the stock?

Venezuela's gold supply has almost halved in recent years (Source: Zero Hedge)

This contribution was made from Geotrendlines