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Fed Audit Confirms Purity of U.S. Gold Reserves

Written By Brian Hicks

Posted February 20, 2013

Last year, U.S. presidential contender and contrarian Ron Paul kicked up a fair bit of fuss when he called for an audit of the New York Federal Reserve.

Specifically, Paul—while he was still in Congress—raised the question of whether the Fed had properly managed its gold, and to that end, he championed a bill calling for a full audit of the U.S. national gold reserves.

At the time, Paul stated that his position was in fact in response to widespread conspiracy theories regarding the fate of the U.S. gold stored in Fort Knox, the New York Fed, and in other locations, as CNNMoney reports. And in January this year, a petition went up on the White House pages requesting a detailed public audit of all U.S.-held gold reserves.

The thinking of the Gold Anti-Trust Action Committee and other critics goes that the actual value of the gold held around the world in central banks is grossly overstated.

Indeed, as the petition points out, U.S. bullion was last audited in 1953. The petition specifically requests auditors not affiliated with the U.S. Mint, Treasury, GAO, Inspector General, and indeed the entire Federal Reserve system.

The most powerful criticism was usually predicated on the fact that what should be a relatively straightforward effort—verifying the quantity and purity of each gold ingot or coin in storage through the efforts of a non-governmental agency—apparently could not be done. And therefore, something was fishy.

Now, the Treasury Department has completed the first-ever such audit, examining the gold deposited at Federal Reserve banks in New York and in other places. The audit used a process known as “assaying” to drill minuscule holes into some of the gold bars to judge their fineness and purity.

Interestingly, it turns out the gold is actually purer than anticipated in 3 out of the 367 tests—meaning the government has had to increase the total value of its gold holdings by roughly $43,500, the L.A. Times reports.

Some 10oz of gold was consumed during the assaying process, while another 69 ounces that were needed for sampling were returned to the Treasury. In the case of New York, the gold has been placed under what are called Official Joint Seals, which establish and safeguard the audit results. It means, in essence, that the full, detailed auditing process need not be repeated unless these seals are tampered with.

From the L.A. Times:

“At this point, we do plan to conduct this audit annually,” the inspector general’s office said in e-mailed responses to questions. “However, since the gold is now under Official Joint Seal, we would not anticipate weighing, counting, and assaying unless the seal shows signs of tampering.”

Nearly 99.98 percent of gold bars and coins belonging to the Federal Reserve is stored at the New York Fed. Others are kept at Federal banks in Richmond, Kansas City, and San Francisco.

As of the end of September last year, this amounted to $23.9 billion total in U.S. gold, going by gold’s price of $1,776/oz at the time. Of course, things have fallen since then—Monday saw gold prices at $1,610/oz.

All of this is essentially the government saying that it’s doing fine—though conspiracy theorists aren’t so easily satisfied. Thus, the L.A. Times quotes Ted Truman, former assistant Treasury secretary and a senior Fed official:

“There’s no way to prove there’s not a secret agreement. I would be flabbergasted if they found some huge discrepancy or even a substantial discrepancy between what they said they had and what they found.”

It’s possible to wish that this audit had been undertaken by a non-governmental agency. Moreover, the facts that a very small fraction of the New York Federal gold was sampled, and that no other gold reserve holdings were even examined, are sure to keep the conspiracy theories churning.

As it stands, critics would be fairly justified in pointing out that having the Treasury inspect a small portion of the total U.S. gold holdings and then sign off on the findings doesn’t exactly amount to a convincing assay of all U.S. gold reserves.

On the other hand, perhaps this recent audit can serve as a temporary statement from the Fed certifying the validity of its gold.