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Game Changer – Is Chavez in your Woods, Mr Bear, looking for Gold?


By Ben Davies, CEO of Hinde Capital

August 22 (King World News) - President William McKinley, Jr was assassinated on September 14, 1901, having returned the US to prosperity after the Panic of 1893 with the gold standard. Theodore Roosevelt, his then Vice-President, succeeded him, and he maintained adherence to the gold standard. If Teddy could see us today what would advice would he give? May be he would bastardise a few lines from his wife’s poem:


If you go down to the woods today, You’re sure of a big surprise,

If you go down to the woods today, You’d better go in disguise,


For every “Gold Bear” that ever there was, Will gather there for certain, because

Today’s the day the Teddy (Gold and Silver) bears have their picnic


Every “Gold Bear” who's been good, sadly is not in for a treat today

There's NOT a lot of things to eat, And NO wonderful games to play


BECAUSE Beneath the trees where nobody sees, They'll play hide and seek as long as they please

'Cause that's the way when you are looking for your GOLD.


Just beware the angry “gold bears”…


Even I, as a proponent of gold, felt we had a short term risk of a sell-off. May be we still do, and as a firm we had reduced our overweight position in physical bullion by a move into physical silver – I like the optionality that silver offers you on gold as a monetary asset – as it lags the gold price here. Silver will resume its course higher having served time for its momentary mid-year over-exuberance.


But by close of business last night we also re-established our overweight position to physical bullion. Why - ‘When the facts change, I change my mind. What do you do, sir?’


Possibly the only common sense uttered by Keynes. As much as it loathes me to quote a man I hold responsible for so many ills today (sure he wasn’t all bad – and he created a wonderful economic debate – but at what social cost?); there was a game changer event yesterday: Chavez - the proverbial thorn in the West’s side - ruined the gold-bears’ picnic.

Just when the bears thought it was safe to come out and play the “cheeky little chappy” dared to ask for all his gold back.


So what? I hear you say. Well I believe this is significant. Chavez holds 365.7 tonnes of gold overseas, mostly in Western Central Bank vaults, such as the Bank of England. Some 100 tonnes of Venezuelan gold is held there. We believe a transfer of the full amount; most is held overseas, would be one of the largest known physical transfers of gold this century, if not the largest.


The question is: do these vaults still have all the gold? According to GATA’s work much of Central Bank gold has been leased, swapped or just plain sold into the market. Central banks did this to assist governments in maintaining the illusion that their currency was not being debauched by oversupply.


GATA believe, as we do, that the gold market is run like a ‘fractional reserve bank’. This means each troy ounce has been lent or swapped out many times over, and should gold holders request the return of their gold en masse, we could get a proverbial ‘gold bank’ run.


There is just not enough readily available supply of physical bullion to facilitate such an event. We point you to our June presentation given at Mines and Money in Beijing:




Chavez, loose cannon or not, just reminded us all that possession is 9/10ths of the law. This will get other governments (central banks), and financial institutions who hold their gold abroad to reconsider their gold holding locations. We could see further repatriation of gold home. Maybe the Europeans will ask for a return of their gold. Remember last time a European did that? August 15th 1971 and Nixon’s closing of the Gold Window was the response. And the rest is history.


In keeping with our power law theory we love to espouse so much, if 20% of the holders want to have their gold returned, then we are at a critical point, whereby gold will rise at an exponential rate. We are witnessing this now to some extent.


This could inspire all individuals to shun paper constructs in favour of the physical. Global demand is rising day by day, and will only get stronger into the seasonal buying period. The strain on the refiners and vault owners will manifest itself in much higher gold prices, as readily available gold will not be forthcoming.


Ben Davies

Director & CEO

Hinde Capital

www.hindecapital.com


The KWN interview with Ben Davies is available now and you can listen to it by CLICKING HERE.


© 2011 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.



Eric King

KingWorldNews.com

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