What If There Is No Gold at Fort Knox?
What If There Is No Gold at Fort Knox?
What If There Is No Gold at Fort Knox?
Gold is a commodity and its value is subject to the law of supply and demand.
In every sense, gold is real money because it has value and there is only so much of it, unlike the currency of the US which is paper money and with what appears to be an unlimited supply due to excessive money printing.
As long as the Federal Reserve has access to printing presses and is able to print more and more money, gold with its limited supply, will become more valuable.
The more supply you have of something, its value goes down. The less supply you have of something, its' value goes up.
Therefore, with a limited supply of gold and an unlimited supply of dollars, it will take more and more money to buy an ounce of gold this is what drives market value; dollars fall and gold rises. It is unavoidable.
Today, the American dollars in circulation are just a bunch of IOUs and this would be fine if the gold reserves were sitting in Fort Knox to back up the IOUs but what if Fort Knox has no gold?
This question dates back to the days of the Great Depression.
In November 1932, the American people voted for change and elected New York governor Franklin Roosevelt as President. Immediately after taking office in March 1933, Roosevelt issued Executive Order 6102, restricting the ownership of gold coins, bullion and certificates by private citizens.
Roosevelt explained at the time that he wanted the American people to loan their gold to the federal government during the Great Depression. Within months of Roosevelts edict, Americans by the millions back in a more innocent age handed over their gold to the U.S. Treasury.
The federal government, in turn, needed a place to store the peoples gold. Thus, in 1936, the Treasury Department constructed a massive granite-lined depository adjacent to the Army base at Fort Knox, Kentucky. Treasury employees melted down millions of gold coins, cast the gold into bars, and placed the bars inside the new depository.
There was, to be sure, a lot of gold in Fort Knox. According to the Treasury Department, the Fort Knox Depository held 649.6 million ounces of gold as of Dec. 31, 1941. Thats well over 20,000 tons of gold, or the equivalent weight of a Navy heavy cruiser built of gold from bow to stern.
Then came World War II, the Cold War and its related arms race, the Korean War, the Vietnam War and a long string of other U.S. military engagements and commitments up to the present.
Add in the nonmilitary expenditures of the federal government over many decades, such as the Great Society, the War on Poverty and the seemingly ceaseless growth of an entitlement-based federal welfare state. Pile onto the ledger the ongoing expense of running a massive network of federal regulation of pretty much everything.
Big wars and big government cost a lot of money. The bottom line is that today, the Treasury Department states that there are 147.3 million ounces of gold in Fort Knox. Thats less than 23% of the original quantity loaned by the people to their government in the 1930s and on deposit back in 1941.
Not to worry, however. The official Treasury Department statement on the matter of gold in Fort Knox is that The only gold removed (from Fort Knox) has been very small quantities used to test the purity of gold during regularly scheduled audits. Except for these samples, no gold has been transferred to or from the Depository for many years.
The Treasury Department adds, helpfully, that The Depository is a classified facility. No visitors are permitted, and no exceptions are made.
We would never want any visitors to look inside the Fort Knox Depository, would we?
But wait a minute; aside from taking the word of a few anonymous federal managers, nobody really knows whats inside Fort Knox. You probably have seen the James Bond movie Goldfinger but thats not real, it is only a movie.
We can understand the desire to keep Fort Knox secure but its NOT out of line to want to know with certainty whats inside the national gold depository. Nor is there anything wrong with wanting to get the information from an independent source, and not merely a declaratory statement from the U.S. Treasury Department.
Trust, but verify, as President Ronald Reagan used to say.
That is, auditing the U.S. gold supply is prudent management of an important part of the U.S. monetary base. Following the Reagan analogy, assuring the amount and quality of the gold supply is as important, in its own way, as keeping tight control over the nations most powerful weapons.
The gold in Fort Knox came, quite literally, from the pockets, purses and bank vaults of the American people. Thus, the American people are entitled to know whats in Fort Knox both the amount and the quality. The Treasury Department should open the doors of Fort Knox to an independent third-party audit by competent metallurgical and forensic specialists.
What would the impact of a gold audit be? Here are two possibilities.
Suppose we learned that everything was there, all 147.3 million ounces of gold, based on the gold melt of coins from the 1930s. It would remove the basis for well-known concerns that the gold has been somehow leased away or transferred out. A good, clean audit would likely calm the worlds gold markets. We could actually see the price of gold pull back a bit while the dollar strengthens.
However, if an independent audit found that theres not as much gold as we thought or if there were problems or if some of the gold was missing, there would be a new series of issues for the gold markets and the federal monetary authorities.
The point is that the Fort Knox gold had better be there, because thats what the federal government has been telling the world for many decades. Thats the story. Lets confirm that its true.
Its not that difficult to audit the gold reserve; just do it! Provide an honest assessment to the American people about what is inside Fort Know and then lets move on.
In the meantime, what to do? Obtain more financial education and learn how to protect yourself during these trying times and purchase precious metals including gold to hedge or protect your net worth against the decreasing value of the US Dollar, which is just paper money.
I favor a quote from Steve Forbes Forbes says that pursuing additional financial education and the resulting increase in our financial literacy will open our eyes to being savvy with our money and using alternative wealth creating strategies; this will be they key to resolving our financial crisis.
To gain the necessary financial education, it is best to pursue association with, access to, and membership in, a wealth creation community. As a result, you will learn about alternative wealth creating strategies and consider investments in non-dollar denominated assets perhaps emerging markets perhaps energy assets that are inherently useful like oil rigs, hydropower, or methanol plants perhaps precious metals, rare earths, water rights, oil, natural gas, potash mines, or gold mines things hard to build, difficult to replace, and costly to substitute definitely not financial stocks, definitely not retail stocks, definitely not commercial property.
For those wanting protection of their purchasing power in gold, there are several ways that may be appropriate to obtain this protection. These include direct ownership in minted coins, use of gold exchange traded funds, gold mutual funds, and junior gold stocks. Many are investigating having part of their IRAs in gold, silver, precious metals, and non-dollar denominated currencies.
In addition, for those that truly believe sovereign risk is the greatest risk we all face, it is wise to learn how to implement a multiple flag strategy to diversify this risk or provide protection against higher taxes, capital controls, hyperinflation, civil unrest, erosion of personal liberty, and the rise of a police state. With a multiple flag system, you consider taking preparations like, but not limited to, establishing a foreign bank account, purchasing some real estate overseas, seeking alternate sources of income, dual citizenship, and carrying multiple passports.
I will continue to provide examples of things we need to learn, the secrets of the insiders, as part of being savvy with our money, and introduce alternative wealth creating strategies, in future articles and updates at my blog over the next few weeks.
In addition, a good book to read would be Bad Money by Kevin Phillips; it describes Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism.
Finally, I want to thank Byron King editor of Agora Financial as he was the source of some of the materials about gold and Fort Knox mentioned in this post.
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