Gold Headlines - Common Sense, Nonsense, And BS

GOLD HEADLINES TODAY 

There are three headline news items which have attracted a significant amount of attention in the gold space lately. They are as follows: 1) gold "shortages" in London, 2) gold reserves at Fort Knox,  and 3) revaluation of U.S. gold reserves. Both the headlines and the stories are rooted in fantasy and hyperbole. A more realistic take on them follows...

LONDON GOLD SHORTAGES

The news about transfers of gold held in London almost immediately turned into nonsense about shortages of the yellow metal. How so? Did the gold just disappear?

A little bit of digging (just a pun) by Ross Norman of Metals Daily offered a healthy dose of common sense to the unenlightened who were basking in their inappropriate fantasies about obscene gold price projections. Here is what Norman said...

"...so this is a logistical and conversion problem … fine ounces of gold are needed in one location (New York) > which needs to be converted into another form (in Switzerland) > and then shipped across the pond. Of course there are limitations on the Swiss refineries melting capacity to convert 400 ounce gold bars into the kilobars, as well as limitations on metal handling. Again … big deal. You've been in a car … temporary log-jams happen.

And if 435 tonnes of kilobars are now in New York then surely the problem is as much about surpluses on one side of the Atlantic, as much as so-called 'shortages' on the other. Taking the 10 year average, the US purchases only about 20 tonnes of physical gold bars each year – so 22 years worth of bullion bars have just washed up on their shores. Likely as not, like last time (covid), these bars will simply be flown home to London (via the Swiss refineries where they are converted back into standard bars) over the next few months. Nice business for some."  

Read the entire article at metalsdaily.com

Gold At Fort Knox 

For decades, people have been fascinated by the prospect that there might not be any gold stored at Fort Knox. Calls for an audit have been sounded quite regularly for more than fifty years.

An audit was performed in 1974 and various reports since then have certified the existence of the gold; yet, doubts remain.

The Sound Money Defense League says there has not been "a complete review of Fort Knox's gold reserves...since the 1950s".

The amount of gold supposedly stored at Fort Knox is approximately 8000 tonnes (metric ton). The total world gold supply amounts to 190,000 tonnes. (estimates vary widely)

In other words, the amount of gold (if it is there) held by the United States, represents about 4% of the total world supply of gold. That amount might seem small; however, the United States is still the country with the largest amount of gold reserves.

If an audit is conducted, we still may not learn anything new. The gold stored at Fort Knox represents about half of U.S. gold reserves. If there is no gold at Fort Knox, then, it's not a total loss.

In addition, any discrepancies at this point are likely well-discounted in the world market price for gold.

REVALUATION OF GOLD 

The term "revaluation of gold" is incorrect. What is meant involves a repricing of gold reserves held by the United States on its own balance sheet. Since 1971, the official price of gold as far as the United States is concerned, is $42.22 oz. Gold reserves shown on the balance sheet are listed at $42.22 oz., seriously underpricing gold reserves continuously for the past six decades. Why?

When former President Nixon terminated convertibility of dollars for gold at the officially agreed upon price, maintaining the official gold price of $42.22 was an attempt to save face. The United States government had inflated the U.S. dollar beyond any reasonable limits, and previous repricing efforts had not worked as intended. To reprice the gold would be official recognition of what everyone else already knew - the U.S. dollar was losing purchasing power at an alarming rate.

Without the promise of convertibility, the government could continue to inflate its currency without having to give up a valuable asset at a previously agreed upon cheaper price. Since that time, the global markets for gold determine its price, which is a reflection of the ongoing deterioration in the U.S. dollar.

Why is a "revaluation of U.S. gold reserves" such a focus of concern now? Here is where the nonsense comes in...

Treasury Secretary Bessent recently promised that the United States would monetize assets on the U.S. balance sheet. A repricing of gold reserves from the current $42.22 oz. to an actual market price of $2900 oz. would increase the $value of the gold reserves from about $11 billion to as much as $765 billion. Some have said that such a move would result in an increase of $750 billion for the Treasury. No.

The gold already exists; presumably. The world gold price already tells us how much the gold is worth. What difference does it make whether the U.S. stupidly clings to its last official price; or, throws in the towel and admits that the market price for gold is the real deal?

Contrary to the claim that the move "would add $750 billion to the Treasury overnight", I say BS. For the U.S. to take advantage of this in any meaningful way, the Treasury would either need to issue more debt in amounts that exceed what they issue on an ongoing basis already. Or, they would need to sell some of their gold at the higher market price.

Well, bully! Do you think the U.S. alters (or will alter) the issue amounts of new Treasury debt based on its own official price for gold? Of course not! And, if the U.S. wanted to sell some of their gold, they would get the market price for it; regardless of what the U.S. "official" price is. And, furthermore, they could issue huge new amounts of debt now, or sell gold now, if they wanted to; without repricing the U.S. gold reserves.

So, what has changed? Nothing.

MORE BS & CONCLUSION

Someone exclaimed errantly that "Monetizing the asset side of U.S. balance sheet WILL SEND GOLD & SILVER SOARING". No, it won't. Monetizing the asset side of the U.S. balance sheet is a non-event. Any actions that would disrupt or alter to any degree the ordinary market activity for gold and silver are independent of any actions taken by the U.S. to reprice its own assets.

Unrealistic expectations for the gold price which are based on any of the above "news" items are likely to be a source of disappointment for investors.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN'T, AND WHO'S RESPONSIBLE FOR IT and ALL HAIL THE FED

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