Wikinvest Wire

U.S. Central Bank Gold Sales

Wednesday, March 22, 2006

Why is it that you never hear the phrase U.S. Central Bank Gold Sales? In the news yesterday were two stories of European central banks and their gold - it seems the German Bundesbank now refuses to part with 600 tons (about $10 billion) of atomic element number 79 under the terms of the Washington Agreement, while future prime minister Gordon Brown is being roundly criticized for selling much of the U.K. stash at far too low a price a few years back.

But the U.S. central bank and their gold?

Why is that you never hear anything about the gold at Fort Knox being put to some good use, like maybe helping to balance the budget or paying for a new spy plane or something?

We'll get to that in a minute.

According to this report, the German central bank is causing problems for the politicos in Berlin by hoarding useless gold bars in a vault somewhere when they could instead be sold at today's lofty prices and the proceeds invested somewhere to earn four or five percent per annum.

“Gold is an essential part of the currency reserves of the Bundesbank,” said Axel Weber, Bundesbank president. “Decisions on the manner and size of reserves are taken autonomously.”
...
Mr Weber said no decisions had been taken about possible gold sales in future years. According to the Bundesbank’s annual report, it held 3,427.8 tonnes of gold at the end of 2005 – with just five tonnes sold for minting coins.

The bank is the largest holder of gold among the 15 signatories to the gold agreement. The cash-strapped Berlin government has stepped up pressure on the Bundesbank to sell gold, and for the interest on the proceeds to be used to fund research and education projects.
Based on Axel's comment, there doesn't seem to be much room for Ms. Merkel to negotiate, however, maybe a German named Axel just feels compelled to sound gruff when interviewed by the financial press about the new lady boss in Berlin.

This response is in striking contrast to what one might expect of the equivalent relationship here in the States. It is doubtful that Ben Bernanke will ever utter any form of the word autonomous in regard to a Bush Administration request, having toiled at the White House for more than six months last year prior to securing his appointment to the top spot at the Fed.

Across the English Channel, the Times reports that the Chancellor of the Exchequer is taking some heat for selling most of their useless gold bars five years ago at the market bottom - timing is everything they say.
The Chancellor sold 395 tonnes of Britain’s gold reserves between 1999 and 2002, generating $3.5 billion. At yesterday’s London closing price of $554.10 he would have generated more than $7 billion (£4 billion).

Vincent Cable, the Liberal Democrat treasury spokesman, said: “The decision to diversify Britain’s foreign reserves away from gold is a sensible one and one I have supported but the Treasury’s impatience over timing has obviously been very costly.”
Based on information from the World Gold Council via the always helpful Wikipedia, it appears that the Brits knocked themselves out of the top ten in gold reserves in addition to losing out on an extra few billion in paper money.


Note that resource rich and mining crazy Canada appears nowhere in the top twenty, or in the entire list of forty for that matter - here's one explanation for how the useless gold bars fled their vaults.

Which brings us back to the original question of the day - why don't you ever hear about the U.S. selling its gold? Over 8,000 tons! Just sitting there! If the proceeds could be used to help out with squaring the books on Capitol Hill, and they do seem to need some help, then shouldn't our elected officials start clamoring for the U.S. central bank to start emptying the vaults?

Mark Cuban of Broadcast.com and Dallas Mavericks fame wondered the same thing last year and, while not too handy with a calculator and maintaining a less than optimal knowledge of money, he does ask the obvious questions.
Where gold acted as the ultimate hedge against the devaluation of currency in the past, that is no longer the case. Gold is priced in dollars. Not services or other commodities. If the markets and economies were to crash, a basement full of gold bullion would just take space. I couldn’t imagine farmers trading chickens and milk cows or fresh vegetables for gold bullion. For guns, ammunition, gas and oil, yes. For gold no.

Nor could I imagine a scenario where our currency was completely devalued and a gold standard was reinstituted. The reality is that our population , and the world population has gotten too big. There isnt enough gold in the world, let alone in the US to reconstitute a new currency based on gold.

So to get to the point. Its easy to understand why the US needs to maintain oil reserves. Without, the country could grind to a halt. Government oil reserves would at least allow us to fight over who got to keep their lights on and their cars running.

What I don’t understand is why we still keep $10 billion dollars worth of gold stashed in depositories around the country.

My suggestion, let’s sell it.
Mark is right. Useless gold bars collecting dust in vaults in Kentucky and New York - taking up space, requiring guards, barbed wire fences, and security cameras seems to make no sense at all today. Selling 8,000 tons at $550 an ounce would net over $140 billion dollars - that's almost half the current budget deficit and then there would be a stream of income on the invested proceeds of $6-7 billion a year which would help make ends meet in the years ahead.

Of course, the way things are looking right now, maybe the better plan would be to hang on to the entire pile for at least a few more years - that 8,000 tons of gold could be worth near $300 billion if gold prices continue rising at their current pace. That would close the gap for an entire year of deficit spending.

Maybe it is best not to repeat the mistake of Gordon Brown by selling too early - perhaps the Bundesbank has this in mind as well. Maybe that explains why you never hear the phrase U.S. Central Bank Gold Sales.

Or, maybe there is some other reason...

27 comments:

desi dude said...

Looking at the gold reserves indian reserve may be low,but considering the amt of gold in the public hands, i'll not be surprised it is the largest in the world!.
indians have been buying gold for millenia andit is in the civilisational memory as the storage of value.

some time in the last decade, indian govmt considered having gold deposit scheme. You deposit gold ornaments in the bank and bank will lend you money. it fell flat totally. people were just not ready to handover their 'wealth' for paper currency

http://piggington.com said...

My theory as to why the US isn't selling gold to reduce our debt: nobody in the US power structure gives a rat about our debt! Why bother selling gold for dollars when you can just print more dollars?

rich

Anonymous said...

I would be willing to bet the reason for the lack of gold selling by the US is that most of "our" gold was "loaned" out years ago during the late 1990's drive to destroy the price of gold.

Fort Knox is probably full of "IOUs" from bullion banks that borrowed the gold, sold it on the open market, invested the proceeds to make $$$, and have no intention (or ability) to pay the gold back.

Just a crazy guess, though.

dlp said...

Here's a good link for this topic:

We Have A Right To Know

I have no idea as to the credibility of their claims, but the work of GATA combined with the fact that there have been no audits of Ft. Knox for many, many years, does make you wonder.

john_law_the_II said...

why doesn't the US sell it's gold. the question should be, who benefits from not selling gold? why, it's the US dollar. as long as their is (the myth?) of fort knox and it's gold supply the rest of the world will have a little bit more confidence.

Aaron Krowne said...

Most of that gold probably isn't there anymore.

Gary North has an article which talks about how the bullion banks were "lent" the gold by the government throughout the 90s essentially for free, then immediately sold it. If it is ever demanded that they pay the gold back or provide some proxy of equivalent value, they'll all go bankrupt.

I would love to see some numbers on this. How convenient that Fort Knox hasn't been audited since the 70s.

Why would the government do this? To depress the price of gold (selling it while keeping it on the books makes it look like the supply is greater than it is) and comparatively bolster the dollar and distort a number of economic indicators in favor of the US economy.

The Prudent Investor said...

Last year, this year, next year....
The Bundesbank will never sell its gold, politicians have been trying to fleece the vaults since the 1990s for various reasons and get rebuffed every year anew.
Greenspan said in his last testimonial to Congress that gold was the only accepted form of international payments in times of extreme crises, e.g. WW2.

Anonymous said...

Of course there is another reason. You will never hear the phrase "U.S. Central Bank Gold Sales" because technically, the gold belongs to the Treasury. FED is only responsible for safekeeping. Look for the phrase "Treasury Gold Sales".

Anonymous said...

When gold gets to $40,000 dollars per ounce the Tresury can sell our gold and declare the US debt free!! ... until then the printing presses can be kept running 24/7 ...

Anonymous said...

The US Dollar is the World's Reserve Currency. There has to be gold behind it, thus no sales. At least no mention of sales.

Anonymous said...

"Anonymous said...
When gold gets to $40,000 dollars per ounce ..."
Wow! that would be great... is this price possible ? :)

Anonymous said...

The Central Bankers
went to Fort Knox,
To fetch a few ounces of gold;
But when they got there
The cupboard was bare,
And so the poor country had none.

JC Ernharth said...

This comment is so rich:

"...the gold belongs to the Treasury. FED is only responsible for safekeeping... "

Check out the history of the Fed Stewardship of the U.S. dollar. It's a laughable "before and after".

Anonymous said...

1) Gold is only 'useless' when no one perceives it have any value. So far from being 'useless', bars of gold are very useful collecting dust a basement somewhere.
2) As point out, the last accounting of Fort Knox was a long time ago. There have been numerous rumours over the past 25 years:
- forward lending/sales
- use for illegal operations (an accounting would have to show why even 1 oz was missing; so even if not much was used, it is still a matter of a presidency protecting its hide; the Reagan admin. was thought to have used significant amounts of gold during the Iran-Contra fraud - the only known impeachable offense with relevance to abuse of power since Nixon)
- the military, strange as it may seem, may have a hand in not wanting it to be sold or even discussed (also, the US military is the only govt branch with any significant supply of silver left)
- there have been significant rumours of top-secret deals between the US and friendly holders of US dollars, especially of Saudia Arabia; though the gold window is closed, it maybe an insurance policy for several 'valued' friends of the US
- there was a rumour a long time ago that the last official accounting of Fort Knox was a big lie and coverup of previous misuse!
- the James Bond movie 'Goldfinger' may be based on some fact; while I doubt Fort Knox gold is contaminated with radiation, it would not surprise me that there is a significant amount of gold in the world that IS contaminated
3)The fact the US has really never discussed their gold holdings in any great depth in recent time speaks volumes.

Anonymous said...

"We" do not need to sell the gold to get dollars. We can and do make dollars every frickin' day. It's the other countries who hold dollars who will someday scramble madly to replace their worthless green paper with something that has taken human sweat to produce, and cannot be easily multiplied. Ultimately, all currencies will become worthless, and, if the history of France is any clue, the governments of countries who debased their currencies will be challenged by their citizenry. Money is a stand-in for something of real worth, but if what's backing it is of no value at all, then gold steps in. I like Mark Cuban and think he's very bright, but he doesn't get gold. Yet.

Gerald Clifton said...

Gold is the basis. Paper spins around the basis. In a world that prentends "relativity" is absolute, nervous holders of paper (need I tell you who is nervous?) want a basis that the perveyors of relativity can't violate. Which is gold. All of these posts are correct: gold is the basis and paper is arbitrary. Big money wants gold "just in case." And, believe me, in a world run by "C" students, there is plenty of "just in case" out there. Spend money, buy gold. Gerald Clifton.

Anonymous said...

The US government considers gold to be a national security asset. In extreme circumstance which we can easily imagine, atomic war, flu virus, collapse of fiat currencies, etc. gold or a gold backed currency will be the only money asset acceptable to governments and large asset buyers and sellers.
My family history recalls events in the last
century when full faith and credit of governments destroyed a lifetimes work. I
recommend maintaining gold accounts out of
reach of the USA government as it descends into tyranny. bob k

Anonymous said...

All the gold IN THE WORLD (30000 tons) is only worth $500 billion.

The US overspends by that amount EVERY YEAR!!!

Who CARES it they sell????

Anonymous said...

Fascinating question, however, what is the point of the article? It doesn't propose an explanation.

Two myths here: one, there is not enough gold for the world population. Come on! You take a credit card and emboss gold leaf into it. It's the same as money. We have the technology, it's only a matter of what PRICE. You can also use e-gold, with paper or bits a vouchers. Again, plenty of gold, only the PRICE needs to be set.

Two, gold is useless. Yes, this is correct. Certainly I have no use for it. With nice weight might make good ballast or bullets. But so long as OTHER people think it has value and accept it, it does. Just like fiat. And through 5,000 years of trouble (at least in non-abo lands) it has. During times of crisis, the man on the street WILL buy food and lead and not gold. However, a lot of big money will need to exit paper which is at risk of default, and THEY will go to gold. This is why the price rises in crisis, and is at the least stable during deflations.

PS, prob GATA is right and the US has less than half that gold. They can't afford to sell it and have no reason when dollars are accepted. When dollars default, they'll create a pseudo-gold fiat backed by the still-uninventoried gold and start the game over again.

Anonymous said...

Yeah gold could reach $40,000 an ounce, but realize that everthing else would be way higher, like a $35 Big Mac.
Gold is wealth! When it is measured against something like the Dollar, its 'value' goes up when the Dollar goes DOWN.

Anonymous said...

Who says the US government has all of that gold? 1- Given that almost every US government report is full of BS, and 2- No independent audit of gold has been completed in the last 30 + years, and 3- Given how the US government & central bank have activity tried to increase the value of the dollar by selling off gold, my money says it ain't there.

Truth? Why would the government want to tell the "morons" they pissed away our gold reserve?

Anonymous said...

In/on ALL major US military bases, the CG (commanding general) has the requisite top secret and ALL other "compartmetalized"anxillary" beyond a TS clearance, to go everywhere within said military base.

The single exception is at Ft. Knox. Check it out. Civilain "droids" have come and gone over wide spanse of years into and out of the gold vaults there. No "access logs" have ever been signed, no military personnel have ever entered the vaults themselves.

My point.......there siply isn't any gold in "dem dere" vaults. Not for quite awhile .

There *MAY* be some few thousands of ounces troy, beneath "the several " Federal Reserve Banks (Neither Federal and with no reserves ).

In reiteration, there just ain't any "US gold reserves" extant. Zilch, nada, nichts, etcetera.

'nuff said.

Fellow Traveller

Anonymous said...

For those who think that gold is useless read THIS..

have you ever held/seen a liberty double eagel $20 gold coin ? They were minted in the 1800 early 1900 and they were worth $20. yeh you could buy with that coin a suit, lots of food, a horse and a lot of other goods in those days. and.... thats what you can still do with that gold coin today. you can buy lots of goods. now had you been holding a $20 note what can you buy with it ? i dont have to tell you what you can buy with $20 but not very much. gold as money keeps it value !!!

gold is money !!! gold is honest money !!! why we have an attraction to it and desire to acquire it ? maybe because our women love it and we love them.

Anonymous said...

This Author is CLUELESS! the USA has dispensed of much of the Ft Knox holdings throughout the years to surpress the markets. Lets have an audit of Ft Knox, it has been requested before and never done, SHOW ME THE GOLD, I don't think there is much left in there. I am a bigger fan of Silver anyhow, most people don't realize it is scarcer than Gold. You take your Gold, I'll keep my Silver. Look at Silver's perfromance comapered to gold over the last 4 years, its almost tripled in value, Gold is managed, Silver is "free". Let the markets set the prices, and SCREW the Governement manipulators.

dlp said...

hey anon 11:50, your shoelace is untied.

Anonymous said...

The article's author fails to realize, or clearly state that for the first 150 years of the Republic, people WERE PAID IN GOLD OR SILVER. If they chose to accept currency, it was a RECEIPT FOR THE METAL EXCHANGEABLE ON DEMAND. Every single currency note $20 or more WAS INDIVIDUALLY SIGNED BY A BANK OFFICER who faced the most severe penalty if his bank could not instantly back the paper with gold.
Thus, THERE WAS NO INFLATION, save for the negligible amount atributable to new mine production.
The establishment of the American Central Bank (these had existed in Europe for hundreds of years and were one of the Founding Father's objections to unbacked currency was a betrayal of American, honest principals, and it was only in the past few years- after Nixon "closed the gold window" and removed any PM backing for the dollar (he also said, in utter humiliation, "We're all Keynsians now." (Keynes had, in his major work written that surreptitious money creation would lead to new jobs in a recession before its inflationary effect was realized by workers who would otherwise oppose it. This came to be referred to as "pump priming," and advocates never envisioned a system that would allow a national debt in the trillions to result.
Since Central Banks, including the Fed are actually privately owned, there is no reason to believe that they act in other than their own interests. In fact, it appears that in the process of
"supporting" new debt creation (when govt. goes further into debt, it issues bonds which are "purchased" by the Fed with newly printed money) The various Central Banks have actually established a claim on what we like to think of "our" gold in "Fort Knox." There is much speculation as to whether "the gold" really is in Fort Knox- Congress somehow never gets around to a proper audit- BUT THE REAL QUESTION IS WHO REALLY OWNS THE GOLD IN FORT KNOX.
When you read about the Central Bank's selling gold you should first ask,"Did they really, and how would I know?" and 2. "Was it just their own gold in any event, and not "ours." After all,neither they nor anyone else promises that your money will be worth anything tomorrow. And that is the practical joke that Central Bankers have played since time eternal.

sasperillia said...

seems some of the posters here fail to realize that the author is being a little bit coy..

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