FORT KNOX GOLD: Fed figures show US debt over 40 times bigger than gold reserves, critics want proper audit.

But whoever’s telling the truth, America’s gold reserves won’t solve its debt problems.

The Congressional hearing into America’s gold reserves has been very revealing this week; but perhaps the most revealing statistic is the audited value of what’s in there.

Either somebody got their decimal point in the wrong place, or the contents of Fort Knox are worth considerably less than I thought. There are 261.5 million ounces of gold held in reserve in the US. As of yesterday, those reserves were said to be worth roughly $320 billion. At $1501 an ounce that makes sense; I just thought the weight was much greater than that. (Am I alone in this view?)

That amount of gold wouldn’t even dent (let alone scratch) the surface of America’s deficit (let alone debt). The US deficit is 4.5 times the gold reserves; at $15.476 trillion, the US National Debt is 42 times bigger. If interest rates rose to 3%, the US Government would be paying an extra Fort Knox in interest alone.

As I say, I’m surprised the amount isn’t much more. But wannabe Presidential candidate Ron Paul thinks it might be a whole lot less than we’re being told.

You probably haven’t heard of Ron Paul. He’s the Republican Rep for Texas, and something of a lone star himself. You’ll have to make your own mind up about whether Republican libertarians are to your taste, but I don’t care what Congressman Paul’s labels are: he’s been something of a hero of mine since the last financial unpleasantness in 2008.

In a nutshell, Ron Paul believes that the bankers are crooked, the Government lies about all things fiscal, the real People of America have been dumped on for decades, and the Federal Administration should be about 10% the size it is. More specifically, he has been proved right about everything from deficit economics and Iraq to QE policies and bank bailouts.

But the bloke’s main hobby horse is that he thinks the Dollar should go back on the gold standard; and like The Slog, he believes the gold market is manipulated….and the US has far less of it in Fort Knox than it pretends. He was a key driver behind the Gold Reserves Transparency Act of 2011, since the passage of which a House subcommittee is now holding a hearing on whether it was enough. Basically, the hearing morphed into a debate about whether sufficient information is available to the American public about the amount of gold the U.S. holds.

Fort Knox gold audits have been secret for 25 years, and no full audit at all has been conducted since the early 1960s. The last President even allowed into the place was Harry Truman 61 years ago. Ron Paul wants to pass a Bill demanding a full public audit pretty much every year, and during the hearing two days ago, he grilled federal officials at length about their problems with the idea.

During the hearing, Paul suggested that the New York Fed has 5% of the U.S. gold reserves, with the ability to sell or swap gold with other countries secretly. (On that day, as the economic world took a plunge into the depths of despair, the gold price slipped $31. The polite way to describe this is ‘counter-intuitive’). The U.S. Mint insists that moving, counting and testing the gold would cost around $60 million. But I understand Paul has been told by the Fed Treasury that it would only cost $15 million. (The US Mint made $400 billion last year. That’s more than the Gold reserves!)

In defence of gold auditing policy, Treasury Department Inspector General Eric Thorson maintained that independent annual audits of the U.S. Government’s deep storage gold reserves have been conducted annually since 1993. But his choice of words was weaselly-careful to hide one crucial fact: the auditing firm – KPMG – only audits the Treasury’s audit. In short, KPMG checks the Fed’s sums: it has no more idea than you or I whether the numbers are true or not.

Since 2006, The Slog (in its former incarnation as notbornyesterday.org) has been arguing consistently that the gold price doesn’t behave like a free and open market commodity should. It rises and falls at the wrong times, it falls very quickly, the falls are closely correlated to the NYSE openings (10.00 am), and the movements of gold internationally do not correspond to the declarations made by the countries involved.

Until early 2010, China insisted it had only $300 billion in gold. Suddenly, it announced gold reserves of $1.3 trillion. Its claims to have mined this within China are risible – although with South African technical help, it is now mining more and more of the stuff.

The market in paper-tracker gold is a similar case in point. From 2009 until two months ago, I had a gold tracker account with RBS. Each time the ‘market’ price fell, I’d ring bullion dealers. On every occasion, they couldn’t sell me anywhere near as much bullion as I wanted, arguing (quite truthfully I think) “demand vastly exceeds supply”. Since when did a massively under-supplied market show regular falls of $35-50 for no reason….other than the US Fed wanted to (a) defend the Dollar (b) stop a run out of stocks and into gold, or (c) stop a run out of US Bonds and into gold?

In conclusion, let me put it this way: if everything inside Fort Knox is above board and hunky-dory, why are the Fed and its associated auditors so shifty about letting some real auditors in to take a look? Frankly, they have plenty of excuses and rationales – but no reasons.

Two years later: Currency wars get going in earnest

plus

January 4th 2013: the day the gloves came off

25 thoughts on “FORT KNOX GOLD: Fed figures show US debt over 40 times bigger than gold reserves, critics want proper audit.

  1. I’m no expert in gold but I’ve been told many times by people who are that the price is manipulated.
    That has always worried me because where govts’ are involved, well….

    As for Ron Paul – a great guy and strong constitutionalist who does his level best to publicise truth and reality. This probably explains why so few Americans actually vote for him.

    • Actually, a great many Americans like Ron Paul, but we do have a great deal of vote fraud here. This is supposedly in fact how Bush junior made it to the WhiteWash House. Many Americans would like to go back to an observance of the Constitution versus the erosion brought about during the Bush era, which was considerable.

      I hate to say it, but I can just see Paul becoming another victim of a sex allegation. They’re almost stupid enough to try something like that here.

      • “…a great many Americans like Ron Paul”.
        I believe you but obviously not enough to get him into any sort of position of real power & influence. I’d be amazed if his voter support numbers are the result of fraud, but I could be wrong. And I hope to God he doesn’t get nailed by a smear campaign like you mention…..

    • No, I wasn’t saying HIS voter support was the result of fraud. I was saying there was a considerable amount said about that regarding Bush and how he got in the prez slot.

      • OK, sorry, my bad. I thought you were saying that Paul’s low level of support may have been the result of voter fraud (ie someone stole his votes or whatever). Yes I agree about the allegations regarding Bush.

  2. Rumours abound about gold-plated bars of tungsten and/or lead. Apparently, drilling a hole into the centre of a bar is the way to tell.

    Would any auditors be armed with Black and Deckers and authorised to use them?

    • What a thought, and it’s possible, Tungsten and Gold have similar densities, Tungsten 19600 kg/cu.m and Gold 19320 kg/cu.m. They wouldn’t, would they?

  3. Anecdotaly,deposit boxes in Switzerland are like hens teeth.From my own observation,every Russian oligarch in London now has his own strong box the size of a large room,into which strong men have carried large wooden crates.Only one burst open to reveal gold bars,with ensuing threats.Do they know something?

  4. As a one time Treasury gnome I would agree that 261.5 million ounces is the accepted figure. That translates into 8,700 tons of gold, again the accepted figure. (Since most of the gold is coin melt only 90 percent fine that has to be figured in to the calculation.) The ECB has 12,000 tons and China 1,000 tons officially (almost certainly more and headed to 10,000 tons by 2020-25.)

    One puzzling fact is the continual reference to Fort Knox, which as I understand it has been closed as a military base, and a few years ago Treasury redefined its gold as deep storage gold whatever that is) and located at West Point.

    The guys at gata.org have been on this case for about 13 years and nheir contention is that much of the world’s gold in the central banks, including the US, has been lent out to the bullion banks top try and squeeze some measly interest from these holdings. They reckon up to half total holding have been obligated in this manner and there is no way the lent out gold can ever be replaced at today’s prices, since it is on the arms of Indian peasants, without the intervention of force majeure i.e., confiscation as Roosevelt did in 1933.

    I am skeptical about gold’s futre role in the international monetary sphere except as the result of a catastrophe beyond all belief. I am, however, resolute that it is an essential insurance policy for all as we attempt to navigate the storms ahead.

  5. “(On that day, as the economic world took a plunge into the depths of despair, the gold price slipped $31. The polite way to describe this is ‘counter-intuitive’).”
    I noticed that, too John.
    Hasn’t been quite so much of a regular NYSE opening feature as it was before O’Barba came along.
    On the other hand I’m amazed they have anything left in the (metaphorical) Fort Knox given all the fiddling through Bush’s era. Maybe they really should go into the audit with a Black & Decker.

    • I’m inclined to agree with this. Can there really be anything left in Fort Knox?

      According to this article, which is more like a timeline, we get:
      “It has been reported that 40% (13,000 tons) of the world’s gold is five levels below street level in a sub-basement of the New York Federal Reserve Bank, behind a 90-ton revolving door. Some of it is American-owned, but most is owned by the central banks of other countries. It is stored in separate cubicles, and from time to time, is moved from one cubicle to another to satisfy international transactions.”
      How U.S. Gold Reserves Were Stolen
      (knowthelies(dot)com)

      I’m too pooped to read the whole thing right now, but there’s some eye opening stuff on there, least of which is not all the fingers in the pie of the unFed Reserve listed at the bottom.

  6. My simple math would indicate that as and when Crash 2 happens, US creditors will get 2.5 cents to the dollar, on the basis of the audited tally of gold reserves. The curators d’or seemed to be getting quite jumpy about the possibility of test holes being drilled in all the gold ingots, moaning about the cost and the ‘loss’ of gold resulting from the drill holes. I have a plan to calm their fears. Let the or-dentists into Fort Knox and carry out a random test drill on a 1% sample of the ingots – always assuming that they can lay their hands on 1% of the manifest.

    • Dear Ricky,
      there will always be loss when you drill holes in gold – but as any jeweller knows, you can catch the stuff.

      As my pa will tell you, every five or so years, the floorboards of the refineries in J’burg are ripped out and burned to get the dust that has been trodden into them.

      The losses would only be fiscal … and face.

  7. Gold is probably the commodity whose value is more subject to interpretative whims than any other. I find the various factors involved in its market pricing make it almost as convoluted as any unfathomable derivative dreamed up by the banks (although at least Gold has a physical reality unlike the derivative). So its not really something i would want to see form the basis of currencies for that and several other reasons. History has shown that Gold backed currencies have their own problems such as artificially holding them back due to a lack of credit when physical Gold cannot be produced, procured or plundered from others.

    BTW there’s a typo error in the article – the US federal deficit is 10% of the value stated.

  8. John, I believe you are only touching on a part of the gold manipulation. Physical gold makes up only a tiny proportion of “gold” transactions. The vast majority is paper gold – non-deliverable futures and the like which are traded on the COMEX. Comex is owned and operated by Wall Street banks. They set, and change when they feel like it, the rules pertaining to margin and position size limits. Questions:- why were margin requirements increased recently? why do Wall Street banks have exemptions from the position size limits for their shorts?

    This, like most others, is a manipulated, orchestrated market.

    Inflation is on the way, so buy physical in the dips.

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