Metals Notes

Fort Knox Gold: Myth or Reality?

When President Franklin D. Roosevelt issued an executive order in 1933 that outlawed the private ownership of gold coins, gold bullion and other forms of gold, the Federal Reserve suddenly had more gold on its hands than it knew what do with. Thus, the United States Bullion Depository at Fort Knox, Kentucky was born.

The Fort Knox Gold Debate

These days the depository is the focus of much conspiratorial debate. Some highly educated individuals suspect that its alleged inventory of gold bullion is either severely depleted or non-existent. After all, Fort Knox hasn’t been officially inspected since September of 1974. Even then, the “inspectors” (members of the press) were simply taken to a conference room and allowed to photograph a minimal quantity of gold bars. Ever since, admission to the Fort’s supposed gold deposits has been repeatedly denied. So, is there gold at Fort Knox? Or is it gone…lent, sent and spent across the globe? Here are some well documented facts to consider.

Though the media and members of government were allowed access in 1974 to take pictures, the last actual audit of Fort Knox occurred in 1953 immediately after President Dwight Eisenhower’s inauguration. Even then only 5% of the examined bullion was weighed and assayed to determine its purity.

According to CNBC, in 2011 a team of Congressmen, including Ron Paul, pressed for access to Fort Knox to inspect and confirm the validity of our gold reserves. The reason for their suspicion dates back to November of 2009, when China claimed to have received a shipment of U.S. gold that turned out to be Tungsten.

The Treasury’s response to Ron Paul was an exhaustive and lengthy document outlining the entire gold authentication process. According to this report, it would take about 30 minutes to verify the gold content of each bar, or 350,000 man hours, which would require 400 people working for six months.

Where did the Fort Knox gold go?

There has been speculation for many years that the Federal Reserve doesn’t own much gold anymore. Many feel that the Fed has sold off the gold, lent it out or used it for collateral for borrowings. The latter suggestion is the most likely scenario.

Numerous economists suggest that much of the gold at Fort Knox was probably rehypothecated. Rehypothecation by definition is the ethically questionable practice where a financial institution uses for their own purposes, assets owned by a client, either with or without the knowledge or approval of the client.

Let’s assume for the sake of argument that much, if not all, of the U.S. ‘owned’ gold is missing from Fort Knox. What are the possible implications if this is true? The current dollar value of the 147.3 million troy ounces allegedly held at Fort Knox equates to roughly $6.2 billion. A hefty figure for sure but based on our current annual spending the U.S. will have spent it all in less than two days. That fact suggests only minor damage to our economy if said gold is missing. Even though the real consequences are unknown it could also be argued that an empty Fort Knox would be a serious blow to the legitimacy of the U.S. government and our economy.

In conclusion, no one knows for certain how much gold is currently being stored at Fort Knox. Aside from staff, no one has been permitted inside the vaults to verify inventory for decades so there is no concrete evidence it exists. Does Fort Knox really contain billions of dollars of the yellow metal or is this simply the most significant case of “fool’s gold” in history?

By Douglas Trinder
Precious Metals Broker, Jack Hunt Gold & Silver