Gold repatriation trend grows

The tangled tale of Venezuela's gold reserves holds some lessons which other countries are apparently taking note of. The south American oil-rich country has in recent years suffered from severe hyperinflation (reaching more than 34,000% per year) and the inevitable social malaise that brings. Four years ago the UK government recognized Juan Guaido as Venezuela's President, after the country's National Assembly declared the incumbent Nicolas Maduro's 2018 re-election invalid. Venezuela's National Assembly declared its own president, Guaido, to be acting President of the country. Guaido called for an uprising (which failed) in 2019 against Maduro, who continued to control state institutions. Guaido, initially a popular domestic figure, early gained support from the US, the European Union, and the UK, who saw him as a sympathetic and democratic leader. However, leading opposition parties voted to oust Guaido last year and his interim government was dissolved last December, with fresh Presidential elections planned for in 2024. Guaido is no longer recognized by the British government as Venezuela's leader.

What has this got to do with gold? Four years ago the British government recognized Guaido as Venezuela's President, and started legal proceedings to sequestrate some $2 billion of the central bank of Venezuela (BCV) that was stored at the Bank of England (BoE). Since that time the gold has been fought over in the London courts. The most recent legal judgement (at the end of June) held that the BCV, now controlled by a government led by President Maduro, had lost its appeal to recover the gold. The case will now be returned to London's commercial court to determine what happens next.

The Venezuelan case has become a political football.

The Venezuelan case has become a political football. Some consider that it has damaged the BoE's reputation as a provider of safe and objective custodian of other nation's gold reserves. The allegation is that the BoE has been subjected to political pressure by those who wish to deny returning the gold to the BCV and (ultimately) President Maduro, who has in the past made explicit his hostility to the US and its supporters, such as the UK. The BoE says its vaults hold some 400,000 gold bars, each weighing around 12.5 kilos. Assuming that its vaults are full, this is considerably more than the approximately 310 tonnes owned by the UK; which means the bank holds gold on behalf of other nations. The BoE, one of the main storage hubs for official financial institutions, has lost some 12% of its gold holdings since 2021.

As the BoE's reputation is being entangled by the Venezuelan court case, it seems that central banks that own gold are increasingly preferring to hold it domestically, rather than leave it in overseas vaults. The investment management company Invesco has just published the results of a survey of 57 central banks and 85 sovereign wealth funds and their gold; it found that 68% of them now hold their gold domestically, against 50% just three years ago. That figure is expected to rise to 74% in five years. The Venezuelan issue may be less on their minds than the Russo-Ukraine war; the confiscation of Russian assets under sanctions demonstrates that being unable to physically control assets can be unwise.