Investor Insight
Gold mountain values: are the feds selling themselves short?
Why is the gold in Fort Knox valued so cheap? Investigative reporter Brian Deer answers a reader’s query about the bargain-basement book value of government bullion
With not much to do today, I thought I’d get an answer to an intriguing question sent to me by a visitor to my site. RJ Coker wrote to ask if I knew why it was that, at the time he wrote in February 2012, the US government valued its massive stock of gold bullion (plus gold coins, blanks and miscellaneous gold) at just $42.2222 per troy ounce.
That compares with today’s open market price of a little over $1,700 an ounce.
“I went looking on the web for the amount of gold reserves ‘we’ have as a nation and found this file,” Mr Coker wrote, directing me to the 31 January report of the US Treasury’s Financial Management Service. “I wanted to see if ‘we’ as a nation had enough gold reserves to shore up some of the debt our government has been spending lately. What I found did not make any sense to me. Why is the governments price per ounce so different from the market price? No one has been able to tell me and no one seems interested!!! To me it seems like the 40 times multiple of the price of gold is saying someone is cooking the books on our economy–just like before the great crash of the stock market when prices were inflated. This needs looking into by someone. I hope you follow up on this.”
At face value, to the newbie and uninitiated, this does seem like something of an anomaly. At the time I’m writing, the Treasury agency says the federal gold mountain amounts to 261,498,899.316 fine troy ounces. The vast bulk is held in deep storage, checked once a year by the office of the Treasury’s inspector-general. At Fort Knox, Kentucky, they say they’ve got 147,341,858.382 ounces. Westpoint, New York, is certified as holding 54,067,331.379 ounces. And at Boulder, Colorado, they’re apparently sitting on 43,853,707.279 ounces.
As for book value, the Treasury declares the following data. Total gold bullion in deep storage: $11,041,059,486.54. Of which, Fort Knox’s pile is valued at $6,221,097,412.78; Westpoint’s at $2,282,841,677.17; and Colorado’s at $1,851,599,995.81. In addition to this, there’s 2,783,218.656 troy ounces of coins, blanks and miscellaneous gold held, valued at $117,513,614.74.
And on top of this, there’s 13,452,783.620 ounces of gold held for the Federal Reserve Banks (almost all at New York) valued at $568,006,786.04.
Giving us – grand totals time now – a Treasury gold mountain of 261,498,899.316 troy ounces (8,133.52 metric tonnes; 8,965.67 US tons), with a book value of $11,041,059,486.54. Note the 54 cents, by the way.
That final figure is just over 11 billion dollars, which doesn’t sound a lot, when you think about it. And here comes the question from RJ Coker. Surely it’s worth a whole lot more?
I have a sense of the answer, but I’d like to check myself. So I shall call the federal agency now. Why do they value gold at just over forty-two bucks an ounce, when the rest of us must pay 1,700?