Why Does the U.S. Own Gold?

[MediumTex]

The U.S. government owns over 8000 tons of gold.

Why?

Wouldn't it be better for the government to sell into this strong market and use the proceeds to pay down the national debt or on some big government program?

Why do the gold bugs of the world get such a hard time, while the biggest gold bug of them all is rarely ever mentioned?

It's pretty bizarre, but in a sense the U.S. government owns the biggest PP of them all.  Think about it:

--The U.S. government is the largest holder of gold in the world.
--The U.S. government (through the Fed) is the largest holder of treasurys in the world.
--The U.S. government (including the Fed) owns large interests in many publicly traded companies (e.g., GM, several financial institutions, and who knows what is on the Fed's balance sheet?).

The next time someone talks trash about gold, ask them why they think the U.S. government owns so darn much of it.

[AdamA]

Any chance that it's our gold that keeps our bonds selling?  Kind of an informal backing?  I know that's kind of out there, but just curious...

[TBV]

Any chance that it's our gold that keeps our bonds selling?  Kind of an informal backing?  I know that's kind of out there, but just curious...

I strongly doubt it because holders of bonds are paid in dollars which themselves have no claim against the gold.  Also the government issues money in a way that is unrestrained by the amount of gold it has on hand.  So why does it bother to have any at all?  Good question.  The Brits asked themselves the same question about 10 years ago and decided to sell off a big chunk....at precisely the wrong time.  But folks still use the British pound, so I guess it wasn't fatal.

[AdamA]

8000 tons is roughly 384 billion dollars.  It does seem strange that we hold that much gold...given our confidence as a nation in the US dollar...

[craigr]

One reason to hold gold as a country is it is a currency of last resort. In time of war your trading partners may not want your paper, but will almost certainly take gold. It's a strategic reserve asset in that respect.

Check out Gaddafi in Libya. Guess how he's paying people?

http://www.ft.com/cms/s/0/588ce75a-53e4 ... z1HLQI9NZR

The international community has hit Muammer Gaddafi with a raft of sanctions and asset freezes aimed at cutting off his funding. But the embattled Libyan leader is sitting on a pot of gold.

The Libyan central bank – which is under Colonel Gaddafi’s control – holds 143.8 tonnes of gold, according to the latest data from the International Monetary Fund, although some suspect the true amount could be several tonnes higher.

Those reserves, among the top 25 in the world, are worth more than $6.5bn at current prices, enough to pay a small army of mercenaries for months or even years.

But Tex brings up a point I've said for years. For such a useless metal, the US sure does hold a lot of it.

The other point I like to mention is that if gold is such a bad form of money, then remove the taxes on it and let it trade against the Federal Reserve Note on the open market. Surely such an inferior form of wealth will be crushed out of existence by the superior Federal Notes, right?

[moda0306]

I don't know if it's the fed's position that it's such a useless metal.  I wonder if it's a form of "nuclear deterrant" to doubting the U.S. government's clout in issuing fiat currency.  Kind of a "the best weapon is one you never have to use" approach.  If the government didn't have that massive wealth in the form of a monetary metal (the perfect hedge to its own currency collapsing to inflation), we might just collapse to inflation.

Kind of like the well dressed Italian guy (Itialians, please don't take offense) that makes you an offer you can't refuse... if you knew he didn't have the guns and muscle at his beck and call, you might not want to pay him for insurance... but he doesn't necessarily have to show you anything, send any goons to your shop, or pull out any guns.  The mere fact that he has those resources at his disposal eliminates his need to use them in most cases.

[moda0306]

To expand on my previous thoughts, probably the biggest threat to a currency is the stability of the government that issues it (or one of the biggest).  If a government is going to issue a fiat currency, it doesn't want people viewing its stability as that of a fart in the wind... much like a military without weapons ("we'll just buy them when we need to defend ourselves"), a fiat currency issuer without some "leveraged hedge" to its currency's own collapse on its balance sheets would probably have a higher chance of collapsing for that very fact... likewise, any government that has a large supply of gold on its balance sheet has a self-correcting stabilizer to any currency problems it has.

In fact, with all the ST treasuries (its own) and Gold our government owns, and its cozy relationship with corporations, it's on its way to owning a pretty solid PP if we'd just trade those MBS's for Long-term treasuries.  (sarcasm)

[MediumTex]

Note that what we are saying is that gold reserves are the economic equivalent of having a standing army just in case anything goes wrong on the military front.

The implicit assumption is that gold is anything but a barbarous relic.  It sounds more like the economic equivalent of a stealth bomber.

It's comical that people can speak so poorly of gold when such obvious contradictions are right in front of them.

[AdamA]

Probably the biggest threat to a currency is the stability of the government that issues it (or one of the biggest).  

Good point, and one that is not mentioned a lot.  People often compare the situation in the US to that of Zimbabwe or Weimar Germany when they talk about inflation.  Anything can happen, but I think the US is stable enough that there will be demand for its debt for a long time to come.

[AdamA]

One reason to hold gold as a country is it is a currency of last resort. In time of war your trading partners may not want your paper, but will almost certainly take gold. It's a strategic reserve asset in that respect.

Very interesting...does anyone think that there is any credibility to the argument that the US doesn't have the gold it's supposed to?  No recent audit, etc.

[MediumTex]

People often bring up Zimbabwe or Weimar Germany when they talk about inflation and the US...anything can happen, but I think the US is stable enough that there will be demand for its debt for a long time to come.

Something tells me that neither Weimar Germany nor Zimbabwe had 8,000 tons of gold in storage.

[moda0306]

Gold probably is in some ways a barborous relic until things start to go wrong.  Just like a gun could be considered the same.

The thing is, when time does come that it is needed, they will explode in value unlike anything else.  Why?  Neither depends on contracts, managers, law enforcement, governments, etc to work.  It's the "patient assassin" that just sits in wait until the perfect time to strike.

If you look at collective human behavior during times of crisis, all the contracts, social norms, and "investments" we purchased can quickly prove to mean nothing.  Movies often do a good job of showing this.... as the fabric of society begins to loosen, people change.  People are often only as nice, charitable, honest and fair as society asks them to be.

Few see this, though.  They continue to look at investments in the terms of the institutions that provide them to us.  This is natural in some ways, as an institution tasked with protecting someone's wealth will never want to suggest that there is a possibility that they'd ever not keep a promise or continue to exist, or that their paper promise will be as valuable to me as it would today.  In fact, no institution wants to project its own possible failure to the public.  Our government, our banks, our public education system, or military, etc.  And some of these institutions are codependent, so often don't want to question each other's future failure.  This basically creates a constant "lie" in the subtext of everything we do and every plan we make, because that institutional comfort is artificially woven into everyone's psyche and every decision we make... (leather seats, vacation in Cabo, private school, 30 year mortgage, morning latte, have kids, etc).  I'm not saying we should constantly live in a state of fear, but that we should at least think about protecting ourselves from the worst the world can dole out.

[moda0306]

If the fed ever lost its hold on its ability to buy back treasuries with "cash" without causing spikes in interest rates due to inflation fears (therefore causing true fiscal worries as "defecits finally do matter," I'm sure it'd be awful handy to have 8,000 tons of gold (probably now rocketing in its dollar-donominated value) with which you could make those same purchases.

Adam's question about having the reserves it says it has is interesting.  Is that the core of the "audit the fed" argument??? That they don't have what they say they have and therefore aren't as prepared to deal with a collapsing dollar as they appear to be??

Additionally, I can see gold as being of little value if society truly breaks down and there's blood in the streets, but I bet it will do pretty well before it collapses... a lot of MRE's and generators could be purchased while the fed is trying to argue their way through only having 20 ounces of gold in reserve.

[MediumTex]

Additionally, I can see gold as being of little value if society truly breaks down and there's blood in the streets, but I bet it will do pretty well before it collapses... a lot of MRE's and generators could be purchased while the fed is trying to argue their way through only having 20 ounces of gold in reserve.

I think that the social breakdown scenario that many people talk about (TEOTWAWKI) is off-the-mark.

What is far more likely is a gradual decline in living standards, punctuated by occasional abrubt deteriorations in some locations such as one sees during riots in cities or in damage zones following natural disasters.

There is very little historical precedent for abrubt societal collapses (as in overnight or over a few weeks or months), except when something like a volcano or meteor is involved.

Normally, collapse as we think of it today (the TEOTWAWKI scenario) is something that happens to a society over a minimum of 50-100 years.  When reading history it looks like an abrubt collapse, but it really took a generation or two to unfold.

[craigr]

One reason to hold gold as a country is it is a currency of last resort. In time of war your trading partners may not want your paper, but will almost certainly take gold. It's a strategic reserve asset in that respect.

Very interesting...does anyone think that there is any credibility to the argument that the US doesn't have the gold it's supposed to?  No recent audit, etc.

Hard to say. Nixon closed the gold window in 1971 to prevent the massive hemorrhaging of gold to foreign holders of dollars. So the powers that be did seem to think the yellow metal was worth enough to default on their obligations to foreign dollar holders.

[murphy_p_t]

One reason to hold gold as a country is it is a currency of last resort. In time of war your trading partners may not want your paper, but will almost certainly take gold. It's a strategic reserve asset in that respect.

Very interesting...does anyone think that there is any credibility to the argument that the US doesn't have the gold it's supposed to?  No recent audit, etc.

to the last question, see GATA      http://www.gata.org/taxonomy/term/21
Hard to say. Nixon closed the gold window in 1971 to prevent the massive hemorrhaging of gold to foreign holders of dollars. So the powers that be did seem to think the yellow metal was worth enough to default on their obligations to foreign dollar holders.

[AdamA]

Very interesting...does anyone think that there is any credibility to the argument that the US doesn't have the gold it's supposed to?  No recent audit, etc.

to the last question, see GATA      http://www.gata.org/taxonomy/term/21

GATA is basically why I asked the question.  Some poeple take them very seriously, but others view them as crackpots, so I was just curious...

[murphy_p_t]

to begin to answer your question about GATA, it will be helpful to understand the foundations of the "Federal Reserve System"  such as documented by G. Edward Griffin (such as http://video.google.com/videoplay?docid ... 1691870450#). Once you have a handle on how the Fed was formed and what it is, you will have a clearer lens to evaluate GATA's work. In particular, you will better be able to appreciate why there is motivation to suppress gold.



"You may have heard GATA derided as a "conspiracy theory" organization. We are not that at all. To the contrary, we examine the public record, produce documentation, question public officials, and publicize their most interesting answers, or their most interesting refusals to answer. I'd like to review some of the public record with you."  from http://www.gata.org/node/7997

I find GATA's work to be thoroughly professional and compelling. I encourage you to review their work and make your own decision.

[AdamA]

I find GATA's work to be thoroughly professional and compelling. I encourage you to review their work and make your own decision.

I'm neither agreeing nor disagreeing.  However, I've heard the GATA people before, and, frankly, their argument confuses me quickly (that, of course, does not make it wrong).  

I find it very hard to believe that any group of people could successfully surpress the price of gold for an extended period of time.  Even if they could, so what?  Do you think they can do it forever?

G. Edward Griffin is a very intersting guy, and I think it's good to understand his view of the Fed.  I don't think it's the final word on what the Fed is really up to, and why it was created, though.  

[murphy_p_t]

I find GATA's work to be thoroughly professional and compelling. I encourage you to review their work and make your own decision.

I'm neither agreeing nor disagreeing.  However, I've heard the GATA people before, and, frankly, their argument confuses me quickly (that, of course, does not make it wrong). 

I find it very hard to believe that any group of people could successfully surpress the price of gold for an extended period of time.  Even if they could, so what?  Do you think they can do it forever?

this attached is but one piece of evidence which is direct & succinct. I don't know what length of time the German & US authorities thought they could suppress gold for, but they obviously thought they would impact the market, otherwise why go to the trouble?

http://www.gata.org/files/BundesbankLet ... 0-1967.pdf

to the "so what"...well, market manipulation is illegal activity (unless done by the gov't or their agents). This behavior undermines the integrity of open markets. For instance, isn't the job of the CTFC to prevent market manipulation?

No...they can't contain the gold price forever...but they sure seem to be doing a good job of letting it rise in a very controlled manner.  When gold prices explodes higher, all will see that the emperor has no clothes.

[Gumby]

Wow.

Ron Paul asked why Central Banks hold gold, to The Bernank today....

His response....  "Tradition!"

Watch the video:

http://www.zerohedge.com/article/ben-be ... -tradition

[MediumTex]

Wow.

Ron Paul asked why Central Banks hold gold, to The Bernank today....

His response....  "Tradition!"

Watch the video:

http://www.zerohedge.com/article/ben-be ... -tradition

That's beautiful.

Tradition!