sitting on a gold mine
By Martha C. White
isn't right, but it doesn't matter -- all that
glitters won't be sold.
Buried in the Treasury's International Reserve
Position report is an intriguing bit of math.
The document details the total amount, by
weight, of the Treasury's gold reserves, plus a
dollar value for said metal. But some fast
division reveals something interesting: The
Treasury marks the value of its gold at $42 an
ounce, the price settled on in 1973, two years
after the United States scrapped the Bretton
Woods System, which had held gold at $35 an
ounce for decades.
Wait -- what? Spot gold is heading toward $1,100
per ounce, and the Treasury is embracing a Cold
War relic of a price? If the Treasury's bling
were valued at the spot price, we'd be sitting
on a literal gold mine of nearly $288 billion.
Why doesn't the Treasury account for the huge
run-up in gold prices?
For starters, marking the Treasury's gold to
market would create a huge headache of an
ever-fluctuating balance sheet as the price of
gold rises and falls, pointed out Dimitri
Papadimitriou, president of the Levy Economics
Institute at Bard College. Plus, if gold
tumbled, we'd lose our hypothetical wealth as
quickly as we'd accrued it.
More important, the United States isn't selling
its cache. Evaluating the Treasury's gold for
the market would be like putting a price tag on
the White House or the Statue of Liberty -- a
possibly entertaining but pointless exercise.
For the Treasury to say it suddenly has greater
wealth in its coffers might make us feel better
about the burgeoning deficit, but it doesn't
really change anything. For revaluation to have
any economic impact, we'd have to sell,
according to Mark Calabria, director of
financial regulation studies at the Cato
And if the United States were to dump its gold
on the open market, there's no way we'd get
today's spot rate. Governments around the world
collectively hold about 20 percent of the
world's gold reserves. Among these, the United
States holds about one-third of that.
Pouring it into the market would make prices
crash. Even if the Treasury were to sell off
gold a bit at a time, anticipation of future
sales would exert a downward pressure on prices.
Any transaction would also require deft
political maneuvering and delicate negotiations,
because other central banks plus the
industry-backed World Gold Council wouldn't be
too keen on us holding a red-tag sale on our
Raising the value of the Treasury's gold
stockpile would have an inflationary effect,
too, which is the last thing the Federal Reserve
wants right now. In 1933, President Franklin D.
Roosevelt increased the book value of gold to
$35 an ounce from $20.67 to battle deflation. It
did the trick, but the move was risky. Given
that the Fed now has safer ways to create
inflation, a revaluation and sale would come
across as the powers-that-be playing fast and
loose with a shaky economy.
There are certainly people, such as Rutgers
University economics professor Michael Bordo,
who think the United States should unload some
of its stash, on the grounds that the gold
standard doesn't work and that by holding on to
the metal we're clinging to a de facto version
of an antiquated policy. Some research papers
argue that the wealth we keep locked up in gold
coins and bullion would be better utilized if
injected into the economy.
The problem, according to James Barth, senior
finance fellow at the Milken Institute, is that
selling gold is a one-shot solution. Unlike
raising taxes or cutting spending, you get to
sell your gold only once. Yes, it might help us
out of this slump, but we would have one less
major asset to fall back on the next time the