If you believe the government routinely lies or covers up its actions, we can’t simply laugh off the idea that there’s no gold in Fort Knox. Until an audit is done, the facts provide more questions than answers. [This article explores the situation, implications and possible ramifications.]
So writes Louis Basenese (www.wallstreetdaily.com) in edited excerpts from his original article* entitled The Biggest Government Lie in History?.
[The following article is presented by Lorimer Wilson, editor of www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Basenese goes on to say in further edited excerpts:
The United States Bullion Depository – known as Fort Knox – is reputed to be the world’s most secure vault. Completed in 1936, it’s encased in 16,000 cubic feet of granite and 4,200 cubic yards of cement. The vault door weighs an astounding 22 tons and is made of a 21-inch-thick material that’s resistant to drills, torches and explosives. It comes with a bombproof roof, too. Additional layers of physical security include: video cameras, minefields, barbed wire, electric fences, armed guards – even unmarked Apache helicopter gunships – and it’s stationed on a 109,000-acre U.S. army post. The government will tell you that almost 5,000 metric tons of gold, or roughly 3% of all the gold ever refined throughout human history, is safely sealed inside the vault.
The Last Audit
…Amazingly, the last audit of Fort Knox occurred in 1953, right after President Eisenhower’s inauguration. No outside experts were permitted, and only about 5% of the gold was tested so, as such, there has been no full audit in over 60 years! Over that time, however, the government has sold its gold – reducing its holdings from about 20,000 metric tons in the 1950s, to the current level of 8,133 metric tons…
Why Do We Even Have Gold Reserves?
…The gold bars, packed tightly into a secure vault, were supposed to give us confidence in our country’s currency but we cast off the gold standard in 1971 and stopped redeeming currency for gold. Nowadays, therefore, gold reserves are nothing more than an asset on the Fed’s balance sheet, not an integral part of our monetary system….[so it begs the question as to why we are clinging tightly to it.
- Fed Chairman Ben Bernanke says that it’s the result of “long-term tradition.”
- Mark Zandi, Chief Economist at Moody’s Analytics says, “It may lend some confidence to investors that we have large gold reserves but it is more symbolic than substantive.”
- Meanwhile, former Fed Chairman Alan Greenspan reportedly said, we hold onto the huge reserves “just in case we need it.” (That’s comforting.)
In the end, if there’s no real purpose for the gold reserves, then why worry about an audit at all?
Why An Audit Is Unlikely
1. The government might not want an audit because it would lend importance to an asset that it swears is unimportant. As hedge fund manager James Rickards puts it, “An audit would give gold too much credit and start to erode the official propaganda that gold is not a monetary asset…” That makes sense but I don’t think it’s a substantive enough reason to justify the refusal [to undertake an audit].
2. What’s more likely is that an audit would raise more questions than it answers like, [for example,] if the gold is really there, does it really all belong to the government? I say that because central banks routinely lease or lend out gold but current reporting guidelines don’t require them to distinguish between gold owned outright and gold swapped with another party. Instead, the U.S. Treasury simply states its holdings as “gold (including gold deposits and gold swapped).” Such a lack of transparency opens the door to abuse.
Not only could all the gold be on loan (perhaps on unfavorable terms), but banks could also be “re-loaning” that very same gold, thereby creating a “paper pyramid of gold.” The process is known as “re-hypothecation,” and it’s exactly what happened during the mortgage crisis with collateralized debt obligations – and we all know how that ended.
3. An audit might also reveal that the government dumped some gold on the world markets to manipulate prices…and if the U.S. government even sold a little without telling us, trust would be irreversibly broken.
4. More spectacularly, an audit might reveal that Fort Knox is littered with gold-painted tungsten. Here, too, a precedent exists, as counterfeit bars turn up from time to time although I doubt a government would confess to being so incredibly duped.
While I don’t believe Fort Knox is completely devoid of gold, it’s certainly possible that our gold reserves are lower than reported and or not wholly owned by the U.S. government.
If you believe the government routinely lies or covers up its actions, we can’t simply laugh off the idea that there’s no gold in Fort Knox. Until an audit is done, the facts provide more questions than answers.
So what does that mean for the price of gold? Stay tuned for tomorrow’s column. I’ll address that question to provide a real-world, logical price target for gold.
Ahead of the tape,
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.wallstreetdaily.com/2013/07/16/fort-knox-gold/ (© 2013 Wall Street Daily, LLC. All rights reserved.)
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