Gold jumps on Hugo Chavez's decree to nationalise Venezuela's gold undustry
- From: Dow Jones Newswires
- August 18, 2011
GOLD settled at record highs today after Venezuela's President Hugo Chavez said he planned to nationalise the country's gold industry.
The most actively traded contract, for December delivery, gained $US8.80, or 0.5 per cent, to settle at a record $US1,793.80 a troy ounce on the Comex division of the New York Mercantile Exchange. The contract is still well below its intraday record of $US1,817.60 set Aug. 11.
Venezuela President Hugo Chavez said today he plans to nationalise the country's gold industry in a move to take over production and grow international reserves.
Speaking on state television via telephone, the leftist leader said he would be introducing a new decree to put exploration and extraction of gold into the government's hands.
It will be "a decree to take the gold sector," which still remains in the hands of a "mafia and smugglers," Mr Chavez said.
Venezuela has for years talked about cracking down on illegal gold mining and smuggling along the country's sparsely populated southeast region.
At the same time, however, many critics say years of insufficient investment and government red tape have limited extraction of the precious metal.
Gold analyst Ira Epstein, director of the Ira Epstein division of the Linn Group, said: "It's no more gold on the market, it's no less gold on the market, it's just being moved from the private sector to the public and there's going to be less potential supply from private enterprise to the market until its tested in court."
Mr Chavez also plans to move the country's existing gold reserves out of European banks and into vaults owned by the country's central bank. Venezuela's official gold reserves, of 365.8 tonnes as of June, make it the 15th largest gold holder in the world according to the World Gold Council. The Latin American country is well behind the US, which leads the pack with 8113.5 tonnes, and second place, Germany, at 3401.0 tonnes.
"That's not a huge amount of gold considering a few months ago the Mexicans alone bought a hundred tonnes," said Bart Melek, head of commodity strategy with TD Securities.
Earlier in the session, an unexpected uptick in US crude oil inventories forced gold to graze negative territory, hitting session lows at $US1781.60.
"Part of the reason you buy gold would be expectations that inflation will become a problem down the road, but if oil prices are falling, the probability of inflation pressure abates," said Melek.
Investors consider gold a good hedge against inflation because it keeps its value better than other assets.