How To Find $288 Billion in Hidden Gold
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How To Find $288 Billion in Hidden Gold
Just ask the Treasury.
Posted Wednesday, November 4, 2009 - 2:47pm
Buried in the Treasury’s International Reserve Position report is an intriguing bit of math. The document details the total amount, by weight, of the Treasury’s gold reserves, plus a dollar value for said metal. But some fast division reveals something interesting: The Treasury marks the value of its gold at $42 an ounce, the price settled on in 1973, two years after the United States scrapped the Bretton Woods System, which had held gold at $35 an ounce for decades.
Wait, what? Spot gold is heading toward $1,100 per ounce, and the Treasury is embracing a Cold War relic of a price? If the Treasury’s bling were valued at the spot price, we’d be sitting on a literal gold mine of nearly $288 billion. Why doesn’t the Treasury account for the huge run-up in gold prices?
For starters, marking the Treasury’s gold to market would create a huge headache of an ever-fluctuating balance sheet as the price of gold rises and falls. Plus, if gold tumbled, we’d lose our hypothetical wealth as quickly as we’d accrued it.
More importantly, the United States isn’t selling its cache. Evaluating the Treasury’s gold for the market would be like putting a price tag on the White House or the Statue of Liberty—a possibly entertaining but pointless exercise. For the Treasury to say it suddenly has greater wealth in its coffers might make us feel better about the burgeoning deficit, but it doesn’t really change anything. For revaluation to have any economic impact, we’d have to sell.
And if the United States were to dump its gold on the open market, there’s no way we’d get today’s spot rate. Governments around the world collectively hold about 20 percent of the world’s gold reserves. Among these, the United States holds about one-third of that. Pouring it into the market would make prices crash. Even if the Treasury were to sell off gold a bit at a time, anticipation of future sales would exert a downward pressure on prices. Any transaction would also require deft political maneuvering and delicate negotiations, since other central banks plus the industry-backed World Gold Council wouldn’t be too keen on us holding a red-tag sale on our gold.
Raising the value of the Treasury’s gold stockpile would have an inflationary effect, too, which is the last thing the Federal Reserve wants right now. In 1933, then-President Roosevelt hiked the book value of gold from $20.67 to $35 an ounce to battle deflation. It did the trick, but the move was risky. Given that the Fed now has safer ways to create inflation, a revaluation and sale would come across as the powers that be playing fast and loose with a shaky economy.
Photograph by Stockbyte/Getty Images.
Comments
gold price
I believe that until our government addresses the basic structural problems in our financial system of too much debt, we will not have a sustainable recovery. So while the stock market can stay irrational in the shorter term, in the long term I think it will go back to reflecting the fundamentals of our boom and bust economy. And that's why I continue to feel that for long term investors a better portfolio allocation is in cash and gold. I think the gold price will continue to rise due to a lack of faith in central banks' policies and in fiat currencies.
gold vs. currency in circulation
There is approximately $1 trillion dollars in paper currency in circulation. The gold reserves at market are $288 billion dollars.
Since the government does not have $1 in gold for each $1 dollar of paper currency in circulation, then the gold in Ft. Knox is no different than any other asset that the government owns (White House, Statute of Liberty, etc.).
It would more interesting to know the market value of all government holdings and compare that the national debt. Then give the government a credit rating (Geithner can get one for free at annualcreditreport.com).
We could sell a bunch of federal land to our creditors (China could buy Nevada and generate solar power to sell to locals). We could pay down the federal deficit, lower the interest payments thereon, and get some green electricity. That worked in the 90's when we sold Pebble Beach to the Japanese for 900M and bought it back 5 years later for 500M.
Two things...
Firstly, you say that selling the gold would create inflationary pressures which is the last thing that anyone wants right now. Um... no, very much no. In fact inflationary pressures are the FIRST thing that everyone should want right now. Interest rates are at zero and will continue to be so for a long time. But interest rates alone aren't enough to fight deflation, hence the stimulus. The stimulus was only half the size it should have been however, so inflationary pressure would be good.
Second, you say we shouldn't sell the gold now because we might need it more later. Um... when? We just narrowly missed Great Depression 2.0, worst crises of the century.
Gold and common sense
While of course we do not want to sell of the gold reserves, we could take advantage of the gold speculation and sell enough to drop the world price. Rebuy the gold at the lower price and keep the profit to pay towards the deficit. This would also help to stabilize the value of the dollar since it would deter speculators from selling dollars to buy gold. We let the oil cartels try to influence oil prices all the time and when the markets are right thay can. I see no reason why the US should not do the same on a commodity that we have a significant impact on.
Gold for citizens
Treasury is sitting on $288 billion worth of gold and common people like us are struggling to survive during this crisis. Even to pay our bills we have to rely on cash advances. The govt should sell the gold while the rates are high and help people like us by loaning the money at lower rates.