Here is the Fed’s Answer: The Federal Reserve does not actually own gold at all.
The Gold Reserve Act of 1934 required the Federal Reserve System to transfer ownership of all of its gold to the Department of the Treasury. In exchange, the Secretary of the Treasury issued gold certificates to the Federal Reserve for the amount of gold transferred at the then-applicable statutory price for gold held by the Treasury.
Gold certificates are denominated in U.S. dollars. Their value is based on the statutory price for gold at the time the certificates are issued. Gold certificates do not give the Federal Reserve any right to redeem the certificates for gold.
The statutory price of gold is set by law. It does not fluctuate with the market price of gold and has been constant at $42 2/9, or $42.2222, per fine troy ounce since 1973. The book value of the gold held by the Treasury is determined using the statutory price.
Although the Federal Reserve does not own any gold, the Federal Reserve Bank of New York acts as the custodian of gold owned by account holders such as the U.S. government, foreign governments, other central banks, and official international organizations. No individuals or private sector entities are permitted to store gold in the vault of the Federal Reserve Bank of New York or at any Federal Reserve Bank.
A small portion of the gold held by the U.S. Treasury (roughly $600 million in book value)–about five percent–is held in custody for the Treasury by the Federal Reserve Banks, as fiscal agents of the United States. The vast majority of this gold is located in the vault at the Federal Reserve Bank of New York, and a very small portion is on display in several Federal Reserve Banks. The remaining 95 percent of U.S. Treasury gold ($10.4 billion in book value) is held in custody for the Treasury by the U.S. Mint.
Since President Nixon ordered the end to the Gold Standard in 1971, there has been much speculation of how much gold is actually left. A quick google search will report that there are currently over 8,000 tons of gold owned by the United States Government.
Fiat Currency by definition is . This means that a currency is now worth only what level of confidence is in the issuing government. We have seen many fiat currencies fail in recent decades; Venezuela, Bolivia, Belarus and Zimbabwe to name a few. When the confidence in these governments dropped, the currency became worthless overnight. Now in the US we are faced with 40 year high inflation, interest rates on the rise and a recession on the horizon, confidence in the US economy appears to be on the decline. What does this mean for the value of the dollar? We all know that the purchasing power of our dollars has been declining at a rapid rate. Wages are not keeping up with inflation so it would appear we are on a downward spiral.
We have to follow the clues of what moves the central banks are making currently. Since the war broke out with Russia and Ukraine, many countries stepped up their purchasing of gold. This led to India, Russia, Turkey, Brazil and China all massively increasing their gold reserves. There was even talk of a trading block forming between these nations and creating a new gold standard. What does this mean? Confidence in the US Dollar is falling.
In a recent article, Tony Dobra was asked the question regarding Russia backing their own currency with gold. He responded, “It’s not so much ‘possible,’ but probable. Like energy commodities, Russia is rich with precious metals too. Its now favored trading partners, China and India are the world’s two biggest buyers of gold, followed by their friend Turkey. Backing the ruble with gold will re-assure their new friends and create a non-U.S. dollar trading block.”
So what does this mean and what should we do?
The falling confidence in the dollar makes the currency look fragile. If the US dollar is perceived to be fragile then it is likely to drop in its purchasing power. It’s not if but when. Now could be a good time to convert weakening dollars into gold and silver to protect your purchasing power. The US might not be ready to get back on the Gold Standard but that doesn’t mean you can’t put yourself back on the gold standard.