The Gold Anti-Trust Action Committee or GATA is shelling out $264,000 for a full page ad in the Wall St. Journal to call attention to the fact that our gold reserves haven’t been audited for more than a half a century. The announcement of the ad-buy elicited a sharp response from the Treasury Department’s general counsel.
“While the entire gold stock is not physically re-counted in any one year, over a period of years, by our continuous sampling process, the entire stock has been counted, and is effectively re-inventoried,” explains Rich Delmar, counsel to the inspector general of the Treasury Department.
KPMG was the independent auditor to the Treasury Department’s 2006 Annual Report, though it’s role was to inspect the balance sheets and custodial gold policy, not an inspection of actual physical inventory. Custodial gold is reserves being held for other countries in one of our mints and accounts for approximately 90% of a mint’s balance sheet.
According to GATA, the current price of gold can plausibly be a result of systemic manipulation. GATA alleges US gold reserves are being shipped overseas to settle complex transactions performed by the Federal Reserve and US Treasury to suppress the price of gold. They cite as evidence multiple Federal Reserve meeting notes as far back as 1995 indicating that the Treasury Department’s Exchange Stabilization Fund had undertaken gold swaps. “The objective of this manipulation is to conceal the mismanagement of the U.S. dollar so that it might retain its function as the world’s reserve currency,” reads the ad-copy.
GATA has filed a request through the freedom of information act for the Treasury Department and the Federal Reserve to disclose details on any gold swapping or leasing activities. The concern is that our gold reserves at Fort Knox and West Point may be seriously depleted. Craig Smith, the founder of Swiss America Trading Corp, alleges this corruption exists on an even wider time-frame. Smith noted any number of financial crises since the late 1980s that “should have propelled gold way beyond the 1980 high of $850,” including the savings and loan debacle and the birth of the Resolution Trust Corporation, the sub-prime security crisis, as well as the on-going devaluation and de-pegging of the US dollar.
Of course Smith’s company would benefit greatly from a gold crisis. Swiss America hawks gold coins to unsuspecting consumers at the same price as gold bullion, despite the coins having less value than the bullion.
In the information age of unlimited information the lack of transparency into Treasury Department policy is disconcerting. Even more troublesome is the large amounts of money people are willing to spend to call attention to the lack of transparency, and the frightening implications if they are right. America’s empire is not like the empires of the past, based on sheer size of landmass and army, but rather is an economic empire, propped up by the fact that the almighty dollar is a more stable reserve than gold. If this illusion dies, so does the empire.
*Editor’s note: Unlike many propagators of conspiracy theories, GATA is a pretty legitimate organization. Check out their website, which has a pretty nice collection of essays and research into the empirical evidence of collusion in financial markets. They also have an email list and take online donations for those who want to explore the cause.
For those concerned about the potential economic impact from a scandal involving our gold reserves, you can play it safe with little adjustment to your portfolio. Most investors recommend a portfolio of at least 10% gold (or mix of gold, precious metals and other commodities). I’d recommend expanding this percentage of your portfolio to 20% – buying strongly in gold, managed timber. Corn, soybeans and sugar cane are also good recession-resistant positions. Be sure to remember that there is always someone making money when many people are losing money; make sure that you have enough liquidity in your portfolio to take advantage of future uncertainty.