The Battle for Venezuela's Gold Serves as a Lesson in Counterparty Risk / Commodities / Gold & Silver 2019

He whocontrols the gold makes the rules. That old adage applies aptly to the presentcrisis in Venezuela.

Aninternational battle for control of Venezuela’s gold is currently underway. Atstake is the country’s political future – and with it, the global market forits immense oil reserves.

In adesperate effort to cling to power, Venezuelan strongman Nicolas Maduro hasbeen depleting his country’s gold reserves.

Theoil-rich nation once had gold reserves of over 160 tons. But in recent months,Venezuela has sold off dozens of tons of gold to allies such as Turkey, UnitedArab Emirates, and Russia in exchange for euros and other globally recognizedcurrencies.

Nobody intheir right mind wants to conduct international business in the Venezuelannational currency, the bolivar. Even ordinary Venezuelans have largely ditchedthe bolivar for cryptos and other alternatives as inflation rates in thetroubled country top 1,000,000%.

Even asthe Venezuelan government was busily hyperinflating its currency and rippingoff its people, it still held gold in reserve in order to retain the confidenceof foreign creditors including Russia and China. Ordinary Venezuelans couldn’tredeem their rapidly depreciating bolivars for gold, of course. But foreigncreditors could effectively demand payment in gold through the conversion ofVenezuela’s gold into their preferred currencies.

Forseveral months, President Maduro has been trying to retrieve some $1.2 billionworth of official gold being held in Bank of England vaults.

Fearingreprisals from the United States, which has imposed far-reaching economicsanctions on Venezuela, the Bank of England stalled, gave excuses, andultimately refused to return Venezuela’s gold.

TheMaduro government charges that its gold has been illegally confiscated, incontravention of internationally recognized norms.

Maduro’sU.S.-backed rival, Juan Guaido, is demanding that the Bank of England hand overthe gold to him instead!

Guaido isan inexperienced and until very recently obscure political figure in Venezuelanpolitics. Nevertheless, he has been recognized by the United States as theinterim President of Venezuela – even though he hasn’t actually formed agovernment or removed Maduro from power.

If Guaidogets control over the country’s gold, it could be game over for Maduro. Hisinternational creditors would likely begin abandoning him.

U.S.officials have offered Guaido accounts through the Federal Reserve Bank of NewYork to help him establish financial legitimacy. Perks such as free checkingcould certainly come in handy when trying to establish a new government!

At thesame time, the U.S. government is trying to choke off Maduro financially bytargeting anyone who handles Venezuelan gold. Senator Marco Rubio warned UnitedArab Emirates officials on Thursday that transporting Venezuelan gold wouldsubject them to U.S. sanctions.

NationalSecurity Advisor John Bolton stated, “My advice to bankers, brokers, traders, facilitators,and other businesses: don’t deal in gold, oil, or other Venezuelan commoditiesbeing stolen from the Venezuelan people by the Maduro mafia. We stand ready tocontinue to take action.”
Thataction by the U.S. may even include a military invasion of Venezuela.

Neo-conservativeinterventionists within the Trump administration are bent on regime change byany means necessary. Secretary of State Mike Pompeo appointed Elliott Abrams –a staunch opponent of Donald Trump and hisstated non-interventionist foreign policy principles in 2016 – to overseeregime change in Venezuela.

Abramshas a notorious background as one of the main architects of regime change inIraq. Before that, he helped fund and organize violent guerilla “freedomfighters” in El Salvador, Guatemala, and Nicaragua. He was even convicted ofcrimes over his role in covering up the illegal financing of Contra rebels inNicaragua.

Genuinefreedom advocates would love to see Venezuelans take back their country fromthe repressive socialist rule of Maduro. However, an artificially imposedregime change carried out by heavy handed U.S. interventionists could backfire.

Insteadof Venezuela serving as a lesson in the failures of socialism, Marxists, andother anti-American ideologues in the region and around the world will blameU.S. sanctions and other imperialistic aggressions for destroying Venezuela.

U.S.adversaries China and Russia together stand to lose up to $120 billion if theircontracts with Maduro’s government are voided. That’s certainly a big incentivefor them to forge stronger counter-U.S. political alliances and counter-dollareconomic arrangements with other countries that feel threatened by America’sdeep state apparatus.

U.S.sanctions against Venezuelan gold are also raising grave concerns about trustand counterparty risk in the global financial system.

If theBank of England can seize the gold of a sovereign government, is anyone’s goldheld anywhere within the global banking system secure?

“In allits operations, the bank observes the highest standards of risk management andabides by all relevant legislation, including applicable financial sanctions,”the Bank of England stated. Essentially, then, its own custodial contracts meannothing if “relevant” and “applicable” political pressure is brought to bear.
So what’sthe lesson here?

Onelesson is for countries that are not on the best of terms with the U.S.

Suchnations are earnestly developing ways to move assets out of the Federal ReserveNote dollar system and beyond the reach of U.S. financial authorities.

Anotherlesson relates to how to store gold or silver.

If youdon’t want to take personal possession of your precious metals, avoid vaultsthat are managed by regulated banks. There is absolutely no reason to take onthis additional counterparty risk when more private storage options are widely available.

Stefan Gleason isPresident of Money Metals Exchange, the national precious metals company named 2015"Dealer of the Year" in the United States by an independent globalratings group. A graduate of the University of Florida, Gleason is a seasonedbusiness leader, investor, political strategist, and grassroots activist.Gleason has frequently appeared on national television networks such as CNN, FoxNews,and CNBC, and his writings have appeared in hundreds of publications such asthe Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2019 Stefan Gleason - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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