So, About That Fort Knox Gold Thing
Wednesday, 2/19/2025 17:34
No, Mr.Bond. I expect you to audit...
SIXTY YEARS AGO, just as the fictional 007 was thwarting Auric Goldfinger's plan to empty Fort Knox and take America's gold to Soviet Moscow, the US Treasury feared a very genuine loss of its real gold reserves, writes Adrian Ash at BullionVault.
"My God, this is the time...
"If everyone wants gold we're all going to be ruined, because there is not enough gold to go around."
So said US President John F.Kennedy to then-chair of the Federal Reserve, William McChesney Martin in 1962.
The Cold War risked getting very hot amid the Cuban missile crisis, and gold's role as the ultimate asset of national power was being challenged by plutonium. But for monetary power, it remained the ultimate currency, and while America's giant hoard had already shrunk from its World War 2 peak, the mid-1960s saw almost one-half of all the gold ever mined sitting inside government vaults.
What put it there? What kept it locked up?
"Fear, Mr.Bond, takes gold out of circulation and hoards it against the evil day.
"In a period of history when every tomorrow may be the evil day, it is fair to say that a fat proportion of the gold dug out of one corner of the earth is at once buried again in another corner."
So says Colonel Smithers of the Bank of England to double-oh!-seven in Ian Fleming's
Goldfinger (1959). The monetary facts were more prosaic, but the real-world crisis was no less dramatic.
Back in the third quarter of the 20th Century...back before
the 'end of history' marked the 'end of gold' for European central banks enjoying the victory of Western capitalism over Soviet communism...the almighty Dollar supported the world's entire monetary system under the Bretton Woods Agreement signed as the US-led Allies pushed towards Berlin in 1944.
Every other major currency was valued in terms of the greenback, and gold in turn backed the Dollar. Or rather, it backed 25% of the dollars in issue, as per the Federal Reserve Act.
So it was only by holding either gold or dollars (or better still, lots of both) that sovereign governments could hope to settle their international spending and debts with each other.
"Gold and currencies backed by gold [became] the foundation of our international credit," as Bond is briefed by Smithers in
Goldfinger.
"We can only tell what the true strength of the Pound is, and other countries can only tell it, by knowing the amount of valuta we have behind our currency."
Sitting atop this system...the "Gold Exchange Standard" as it's sometimes known...the US Dollar clung onto its position as the world's No.1 currency thanks to the sheer size of US national gold reserves. They'd risen three times over between the mid-1920s and the defeat of Japan 2 decades later, hitting more than 20,000 tonnes by the late 1940s.
At its peak, America's nationalized gold reserve – the single greatest gold hoard on Earth – accounted for almost one-in-four-ounces ever mined in world history. But being the King makes it tough to sleep some nights, and for most of the Bretton Woods period, from the end of WWII until 1971, Washington tossed and turned.
Because if the US gold reserve fell, transferring real wealth overseas, it risked taking the Dollar's position as "top dog" along with it.
"We now have $21 billion worth of refined uranium and plutonium," said a desperate Dwight Eisenhower at a meeting with his senior White House advisors on 9th November, 1960. "This has great future value as a source of power," not least because it now topped the market-value of America's national gold holdings.
So "could it be substituted for gold?" the President asked, proposing a new bed-rock for US monetary reserves and, therefore, for the world.
Eisenhower's question – though bone-headed and "politely dismissed" as Francis Gavin relates in his excellent 2004 history,
Gold, Dollars & Power – was urgent. America's nuclear arsenal already supported its political power. Could plutonium sustain US monetary might as well?
Well...no. "The great thing to remember about gold," as Colonel Smithers goes on in
Goldfinger, "is that it's the most valuable and easily marketable commodity in the world." That still holds true today, six decades later.
Wholesale gold bullion – traded by professional dealers, refineries, bullion banks, central banks, and private investors choosing to use BullionVault – represents one of the world's deepest and most liquid capital markets.
There is always a "clearing price" at which buyers and sellers will trade. Because gold's intrinsic value, the fact that it stores wealth in itself, rather than by deferring that value to some other asset, promise or production, is its only utility.
Industrial and medical uses barely count against the volume of gold held for its wealth-content alone. Whereas money backed by uranium, crude oil, plutonium or copper would be instantly trumped by their value as industrial assets – rare and valuable items, to be sure, but valued for their productive uses instead.
Back in November 1960, meantime, Secretary of State Christian Anderson had called that meeting at Eisenhower's White House meeting because the government-owned US gold reserve...
...fixed vs. the Dollar at an unchanging value of $35 per ounce since 1933...
...was about to slip below $18 billion "for the first time in many, many years."
That was a lot of money in those days, but too little for comfort. Why?
As the chart shows, the mid-1960s found
America's balance of trade tipping into a deficit.
It has rarely looked back. Because the USA still gets to pay the world in Dollars...
...and those Dollars "[are not] an impartial and international trade medium [but] in fact
a credit instrument reserved for one state only," as French President Charles de Gaulle spat in 1965.
So France (and Germany, among others) kept demanding gold rather than accepting US Dollars at face value and sitting on paper in payment. That was their right under the post-WWII Bretton Woods Agreement...
...a right exercised whenever the supply of dollars looked likely to force a revaluation of its gold backing...
...and a right finally lost when
Richard Nixon stopped redeeming dollars for gold in August 1971.
Nixon's decision to
float the entire world off gold and onto pure faith alone is often seen as a "crime", an affront to fair dealing and honest money which is
to blame for, well, everything you can think of. And Nixon certainly stuffed America's creditors, devaluing the Dollar by 100% compared with the promised ratio of $35 an ounce. Runaway inflation then followed as US dollars flooded the world, lacking any "hard asset" backing to limit their growth.
In less than a decade, the gold value of US dollars sank by 96%, pushing the gold price up to a peak of $850 per ounce. Gold has of course gone higher again since 1980, topping $2900 for the first time ever this month.
But in closing the "gold window" at the Federal Reserve – and thereby destroying the Bretton Woods exchange standard – Nixon was only completing a process begun before the First World War started in 1914.
Yes, Tricky Dicky locked up America's gold reserve from foreign governments demanding hard assets in payment of debt. But more crucially in the great arc of monetary politics, Nixon also pushed US gold farther away from private circulation. Barring the US Treasury's late-1970s sales, in fact, he effectively made those reserves vanish from the face of the Earth.
"In the Ian Fleming novel," writes
Francis Gavin – then a professor at the University of Texas at Austin, now at the Johns Hopkins School of Advanced International Studies – "the sinister Goldfinger, ably assisted by Pussy Galore, plotted to steal the American gold supply from Fort Knox.
"The movie [of 1964] added an interesting twist to the book's improbable scenario...Goldfinger tells agent 007 that he does not have to remove the gold physically. Instead, he only needs to get inside Fort Knox and install a timed nuclear device supplied by the People's Republic of China.
"The bomb would irradiate all the gold inside the building and make it unusable...international liquidity would seize up, and the Western trade and monetary systems would collapse." It would also make the gold-mad Goldfinger's own personal stockpile of the stuff infinitely more valuable.
Luckily for the free world, James Bond and Pussy Galore team up at the end of the film to thwart Goldfinger's plan, de-arming the bomb and leaving America's national gold hoard intact.
But in reality, Richard Nixon achieved nothing less than Goldfinger's evil scheme in August 1971...and without the fruity charms of Pussy Galore as encouragement.
Nixon's decision to halt the outflow of nationalized US gold kept it both safe and secure from foreign powers, and also safe and secure from free circulation outside of government vaults. In effect it was irradiated, put beyond human reach and removed forever from the world's available stock of physical bullion.
So what if it's not there?
As you might guess from the story so far, all the causes, issues and challenges around America's giant gold reserve aren't very simple.
But that doesn't mean the richest man in the world can't
reduce it all to a meme grabbed from TV cartoon South Park...
...hurr-hurr...
...nor that stopped-clock clowns can't reply with the
equally vacuous yet heart-sinkingly inevitable 2020s' riposte:
"Bitcoin fixes this."
Oh good grief. How did it come to this?
"It would be great if @elonmusk could take a look inside Fort Knox just to make sure the 4,580 tons of US gold is there," said the X.com handle of financial scuttlebutt website ZeroHedge on Saturday.
"Last time anyone looked was 50 years ago in 1974."
"Surely it's reviewed at least every year?" replied the space-and-electric-car mogul now tasked with
firing everyone
chasing down inefficiency in the US government.
"Nope. Let's do it," chipped in Republican Senator Rand Paul. His dad Ron has been calling on the feds to allow (if not run) an audit of the US Treasury's alleged gold holdings since, well, forever.
Whether or not the gold is all there should matter, of course. Elon Musk is hunting out corruption and fraud across the US government. A big hole in the US gold reserves would be bad.
But really, what use is that gold anyway?
"It'd be nice for the American people to know whether or not the gold is there," said Ron Paul in 2010 during one of his regular calls for Fort Knox to be audited.
Is nice a good enough reason?
"The secrecy has given rise to a number of theories about the gold at Fort Knox and other depositories," Paul the Elder went on the following year when demanding an audit yet again.
"Some people speculate that the gold has been involved in gold swaps with foreign governments or bullion banks, others believe that the gold has secretly been shipped out of Fort Knox and sold, and still others believe that the bars at Fort Knox are actually gold-plated tungsten."
Okay. But what level of audit would properly over-turn such chatter?
An audit alone is meaningless. Paper records have been
checked against paper records many times, as recently as 2023.
No, what you need instead is
what BullionVault users get every year...
...which is a full inspection and tally-count, checking that all the bars listed on our
Daily Audit (which confirms each working day that the sum total of client holdings matches the sum total of bullion listed on the independent vault operators' records) are present, secure, and in sound condition.
Thing is, because BullionVault users own a lot of gold (and lots more silver, plus some platinum and palladium...now worth north of $5 billion all told), this takes the independent experts we employ on your behalf many, many days to complete. It's not cheap. But as a belt-and-braces process to confirm that your metal is where it should be, in full, it is vital.
Few competitors bother (especially those who claim to keep metal in their own store-room, rather than using independent specialists for custody to reduce the obvious risk of fraud). Hardly any gold-backed ETFs go to the trouble of having each and every bar checked either. Instead, they do only a 'sample' count and inspection. Which is what the US Treasury got for its Fort Knox holdings
last time they were checked too, back in 1974.
That sampling, of course, was because the USA's apparent gold holdings were (and are) massive, the biggest in the world, well over twice the size of (current, official) No.2 Germany. So a full count and inspection would take a very, very long time. But it might feel important if you want to push ahead and audit every branch of government in full. Most especially if you want all of those 8,133 tonnes of (reported) gold to be ready for sale...
...y'know, just in case the end of the world arrives...
...or more practically, in case you want to revalue the gold reserve to squeeze a few extra dollars out of the Treasury's arrangement with the Fed.
Under the Gold Reserve Act of 1934, the Federal Reserve
handed ownership of all its gold to the Department of the Treasury.
In exchange, the Treasury then issued certificates to the Fed for the value of the gold, which the Fed could then give to the Treasury in cash. Neat!
But the value of this accounting trick remains stuck at the Treasury's 1973 gold valuation of $42.22 per Troy ounce...
...the official gold price frozen in time when the US and its allies finally gave up pretending that the Bretton Woods system still existed, two years after Richard Nixon shot it dead...
...whereas gold in the open market today commands a price of $2900 per ounce.
Cue much excitement around revaluing the US gold reserve to raise $747 billion at the stroke of a pen (albeit following a Congressional vote).
Cue much chatter about what that accounting trick might mean for the market-price of gold...
...plus much gasping around how selling some of that gold outright would crash the market.
"For the mark-to-market change to have any impact," says one know-nothing rent-a-quote answering the phone to
Fortune magazine
through the seat of his pants, "the US would presumably need to sell off some of its gold reserves for cash.
"It's going to be like Armageddon if they try to dump any significant amount of gold,"
Oh good grief. Marking-to-market would need zero gold selling, not "presumably" or otherwise. It would raise exactly the sum of cash which selling the whole lot at $2900 would achieve, minus the $11 billion already booked under the $42/oz valuation.
This sounds a smart idea. Smarter by far than stretching the US Mint's authority to spit out
a platinum coin with "$1 trillion" stamped on its face. Which was the last monetary-metal accounting trick
proposed with a straight face by the charlatans, chancers and Fed research team.
But as our chart above shows, monetizing the US gold reserve at today's prices wouldn't do much to clean up the United States' fiscal mess.
That's the only real lesson worth noting from the current hoo-ha around America's nationalized bullion stock.
The biggest hoard of gold in the world...
...valued at the highest gold prices in history...
...isn't enough to cover 4 months of the gap between the federal US government's income and spending.
Little wonder gold prices keep going higher, hitting
the 11th new all-time gold high in Dollar terms of 2025 already on Wednesday, as foreign creditors and private wealth seek an alternative store of value to American debt.
And no. Bitcoin doesn't fix that.
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