The U.S. federal government possesses the largest stockpile of gold in the world, but even with record high prices, it isn’t likely to be selling any. In fact, other countries and global central banks are building up their gold reserves as the dollar’s value plummets.

The Treasury Department holds 261.5 million ounces of gold, or about one third of all the gold held by national governments around the world. It is primarily kept in the famed Fort Knox bullion depository in Kentucky, but there are other vaults around the country. The New York Federal Reserve in Manhattan, for example, keeps approximately 25,000 bars in a vault five floors below ground.

Gold is currently trading at around $1,100 per ounce, and that makes Uncle Sam’s treasure trove worth about $288 billion. Despite this, the federal government shows no inclination to sell it off to raise money.

Curiously, ever since the federal government took our currency off the gold standard, the government has been the primary hoarder of the precious metal. The ability to pay for ever-increasing government spending by simply printing more worthless paper money or creating lines of credit out of thin air, while also getting to keep most of such a valuable commodity for itself, was too strong a temptation for those in power to resist.

As Nathan Lewis, author of Gold: The Once and Future Money, put it: “Gold is gold. There’s no real change in gold’s value. Only the value of paper currency declines.” The corollary is that the more currency in circulation, either in printed form or as lines of credit, the less each individual printed dollar is worth. The true definition of inflation isn’t that prices are increasing; it is that the supply of dollars in circulation is increasing, thus diminishing the demand for and value of every single dollar.

Witness foreign nations as their demand for dollars in the form of Treasury securities wanes while their appetite for gold waxes. CNN said on November 13 that the U.S. government “is trying to finance its economic rescue packages by selling record amounts of debt to foreign countries in the form of Treasury securities. As gold holdings take up a larger percentage of foreign reserves, Treasury holdings could be reduced.”

Judy Shelton, an economist who is also the director of the National Endowment for Democracy, believes that currency should be backed by a precious commodity. CNN summarized her words by saying that “the resurgence of gold buying should be unsettling for the government. The trend indicates that some foreign countries would rather hold onto an inert metal than Treasurys that pay interest. Treasurys have long been viewed as a riskless asset, because they are tied to the dollar and are backed by the U.S. government.”

“If the trend continues,” Shelton said, “That could reduce the demand for Treasury securities and bonds’ book value would go down.” Thus the U.S. government’s policy of mounting debt is coming home to roost as a decreasing demand for the Treasury securities that used to be seen as a safe investment.

There may be gold in them thar federal vaults, but until that gold is once again backing U.S. currency, American dollars and Treasury securities will be increasingly seen for the fool’s gold they currently are.

Photo: AP Images

TrackBack URI for this entry

Comments (4)

Subscribe to this comment's feed

Bonnie said:

What is a (legal) dollar? A legal definition of the dollar: "DOLLAR, money. A silver coin of the United States of the value of one hundred cents, or tenth part of an eagle. 2. It weighs four hundred and twelve and a half grains. Of one thousand parts, nine hundred are of pure silver and one hundred of alloy. Act of January 18, 1837, ss. 8 & 9, 4 Sharsw. Cont. of Story's L. U. S. 2523, 4; Wright, R. 162. 3. In all computations at the custom-house, the specie dollar of Sweden and Norway shall be estimated at one hundred and six cents. The specie dollar of Denmark, at one hundred and five cents. Act of May 22, 1846." A genuine dollar is a coin containing 0.77344 troy ounces of pure silver. Silver is worth $1.292929 per troy ounce. (Of course, that is in genuine United States dollars). A United States double eagle was a gold coin with a face value of $20. It contained 0.96750 ounces of pure gold.

report abuse vote down vote up

November 14, 2009
Votes: +2

Samuel E. said:

... Courts let debtors pay with "legal tender" paper notes, and require payment using official notes or official coinage, even if paying at the rate of 412.5 grains of fine silver per dollar using 99.9% pure silver would have been much cheaper. The error is both ways. If the dollar were defined as some number of grams of some metal, of some specific purity, with no other legal tender and no requirement for officialness of coinage, that would solve both problems, especially if done by constitutional amendment. If the value of the new dollar were set low enough, then the Federal Reserve, or a nationalized version of it, could keep the value of old paper dollar notes pegged to the new dollar, especially if Treasury gold could be employed to mop up excess dollar liquidity.

report abuse vote down vote up

November 14, 2009
Votes: +0

jksisco said:

... Our money that is exchanged on a daily basis is actually a Federal reserve note, good for debts public and private, it represents and is backed by the full faith of gov't, which means, taxpayers of course. Whatever our representatives think it is prudent to spend it on, we're on the hook for it. At some point, unless fiscal responsibility is restored, taxes must be raised to cover the difference, backed by gold or taxpayers labor makes little difference since they are really one and the same. Want to see the dollar rise in value, demand fiscal restraint from the congress, until that occurs, expect more of what you earn to be sent to DC.

report abuse vote down vote up

November 14, 2009
Votes: +2

Bob L. said:

Show Me The Gold As part of finding out where the U.S. stands fiscally, not only should the FED undergo a full audit, there should also be an inventory taken of all of the gold held in U.S. government and FED depositories. It has been SEVERAL years since a small group of Congressmen were allowed to look inside of the depository at Fort Knox. Earlier this year I read that there was some gold bars sold on the London exchange that were .900 instead of of the usual .999% traded on the market. I don't trust anyone at the FED or in Washington. We need an accounting as to whether we still have what they say we have.

report abuse vote down vote up

November 15, 2009
Votes: +3