At $35 per ounce the Fed values its gold at $11.037 billion. What’s the gold really worth and why the low valuation?

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The Fed’s gold marked to market at current price of $1984 per ounce. Calculation explained below.

 

Question of the Day

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The Fed has no oil to revalue but it does have gold. How much?

 

Fed’s Balance Sheet in Millions of Dollars

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Fed’s balance sheet from the New York Fed, annotations by Mish

The price of gold at the time I created the lead chart was $1,984 per ounce. The lead chart shows the math involved to revalue the gold at that price.

The gold on the Fed’s balance sheet is worth about $625.6 billion. The Fed’s current balance sheet is $7.815 trillion so even revalued gold would be a tiny percent of the Fed’s assets.

 

Percentage of Fed’s Balance Sheet

• Current: (11,037 / 7,814,991) * 100 = 0.14 Percent
• Revalued: 625,640 / (7,814,991 – 11,037 + 625,640) * 100 = 7.42 Percent

 

Why Does the Fed Value Its Gold at $35 Per Ounce?

One pragmatic reason might be the Fed wants to avoid wild and random swings in the value of its balance sheet.

But the correct answer pertains to the Gold Reserve Act of 1934 as explained by Federal Reserve History.

Signed by President Franklin D. Roosevelt in January 1934, the Act was the culmination of Roosevelt’s controversial gold program. Among other things, the Act transferred ownership of all monetary gold in the United States to the US Treasury and prohibited the Treasury and financial institutions from redeeming dollars for gold.

Roosevelt’s gold program, which began in 1933, first restricted the private use of gold, requiring businesses like the Columbus firm to apply to the Fed for gold bars. The Gold Reserve Act of 1934 was the culmination of this program; President Roosevelt signed the Act on January 30, 1934.

Section 2 of the act transferred ownership of all monetary gold in the United States to the US Treasury. Monetary gold included all coins and bullion held by individuals and institutions, including the Federal Reserve. In return, individuals and institutions received currency at a rate of $35 per ounce of gold. This rate reduced the gold value of the dollar to 59 percent of the value set by the Gold Act of 1900, which equaled $20.67 per ounce. That rate had prevailed until the spring of 1933, when the Roosevelt administration began its campaign to devalue the dollar.

Sections 5 and 6 of the act prohibited the Treasury and financial institutions from redeeming dollars for gold, inverting the system that had prevailed in the United States since the nineteenth century. Under that system, the government converted paper currency to gold coins, whenever citizens desired to do so. Now, the government converted gold into dollars, regardless of whether citizens wanted to engage in the exchange.

Section 12 of the act authorized the president to establish the gold value of the dollar by proclamation. The president did this the day after he signed the act. 

As an agent for the Treasury, the Federal Reserve executed Treasury policies, which included supplying dental manufacturing companies with gold to make false teeth.

Today, you might ask, do dentists still get gold from the Federal Reserve? No is the answer. The provisions of the Gold Reserve Act of 1934 applied to the stock of monetary gold in the United States at that time. The preponderance of that gold remains the property of the Treasury, although much of it physically resides in the vaults of the Federal Reserve Bank of New York.

 

Theft of Property

Confiscation of gold at a price set by Roosevelt is nothing but legalized theft. For this, Roosevelt is revered. I suggest he should have been put in prison.

 

Not Enough Gold Buyers Left?!

Discussion of gold inspired a bunch of absurd Tweets including this gem: “There are not enough gold buyers left.“

 

Will the Fed Revalue Gold?

 

Siding With CEO Technician

Nonetheless, let’s assume I am wrong.

 

Questions Abound

1. On what authority?
2. Why?
3. What good would it do?
4. At what price?

The Fed does not seem to have authority to do do.

Since legality has not stopped the Fed before, another question comes into play: Does the Fed want its balance sheet to wildly fluctuate every day based on the price of gold?

That lead to why, and what good would it do? The answer to the latter is nothing.

 

At What Price?

This is where it gets interesting.

If the Fed set the valuation at the market valuation, then please note it would not be the Fed setting the price of gold. Rather it will be the market setting the price of gold, not the Fed.

If the Fed puts any other price than the market price the market will not go along.

Either way, the Fed will not be setting any price just as CEO Technician stated “Gold is a global market and cannot be revalued by one Central Bank.”

 

A Good Story or Obvious Hype?

Maguire says the Fed will be “forced” to revalue gold as soon as one other central bank does.

That is meaningless hype because the market, not central banks, sets the price of gold. The irony in this silliness is that even if the Fed did what Maguire suggests, it would accomplish virtually nothing!

The madness doesn’t stop there.

 

Nonsensical Idea of the Day

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“The central bank sells the gold to itself and pockets $1900 profit to balance their books.“

If you are looking for humor, Twitter is the place to find it.

Other gold-related ridiculousness surfaced on Twitter including a gold-backed yuan and a gold-backed-BRICS currency.

I have discussed this before, but since resurfaced again, let’s review an idea posted in July.

 

Huge! It’s Official!

“It’s official. RT (Russia sponsored TV) says the new BRICS-currency will be gold backed.”

What a hoot.

 

Gold-Backed Yuan Silliness

Let’s go back even further. In 2017, talk surfaced of a gold-backed petro-yuan fueled by an inane CNBC report.

I mocked the idea in Gold-Backed Petro-Yuan Silliness

A few months later, that idea crashed. My follow-up article was Petroyuan’s Crash at Birth

Seven years later, we have nearly the same discussion.

Undaunted by the failures of prior ridiculous proclamations, the story has since morphed into “HUGE” nonsense about a gold-backed BRICS currency.

 

Gold Backed BRIC Silliness

On July 7, 2023 I mocked the “HUGE” hype in More Gold Backed BRIC Currency Silliness on Dethroning the Dollar

Expect to be underwhelmed, but expect more hype anyway. Hype is sexy. So is predicting the collapse of the dollar.

The BRICS conference, at which the official announcement was expected, came and went with no mention at all of a gold-backed BRICS currency.

 

What Would it Take for a BRIC-Based Currency to Succeed?

People spreading these preposterous ideas never bother to look at key questions such as What Would it Take for a BRIC-Based Currency to Succeed?

I list six conditions, none of which are in place for a BRICS-backed currency to get widespread use.

However, as a sanction-avoidance measure, at a much smaller scale, a BRICS-backed currency could have a bit of success.

Will this stop the silly hype? Of course not. Preaching the death of the dollar or the rise of the yuan always generates clicks.

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