Wall Street Talk of Revaluing US Gold Is Drawing Attention — and Skepticism
(Bloomberg) -- The gold market attracts its share of fringe ideas, and in recent weeks one of them — that the US should revalue its gold stockpiles — has gripped Wall Street.
The idea isn’t under serious consideration among US President Donald Trump’s top economic advisers, according to a person familiar with the matter.
Nevertheless, some gold market participants have taken their cue from Feb. 3 comments by Treasury Secretary Scott Bessent that the government would “monetize the asset side of the US balance sheet” and create a sovereign wealth fund.
The speculation centers around the idea that the US Treasury could re-peg its gold holdings at a higher level, a move that would generate quick cash for a government eager to run more efficiently. In summary: The US government should revalue its gold reserves from the $42-an-ounce set in 1973 to current prices, allowing the Treasury Department to monetize the sudden balance-sheet boost of about $750 billion, thereby reducing the need to issue bonds.
Such a move would likely require approval from the US Congress.
Unlike most countries, the US’s gold is held by the government directly rather than the Federal Reserve. The Fed holds gold certificates corresponding to the value of the Treasury’s holdings, and credits the government with dollars in return.
At the current official price of $42 an ounce, those certificates are worth $11 billion to the Treasury. But gold has been soaring to repeated record highs of late — approaching $3,000 an ounce. If the US government’s gold was marked-to-market, that would surge above $760 billion, creating a one-time windfall.
Beyond simply revaluing the US’s gold stocks, Stephen Miran, Trump’s nominee to lead the White House Council of Economic Advisors, has floated the idea of selling the stash. By selling the gold for dollars, and then exchanging those dollars for foreign currencies, the administration would strengthen “undervalued” currencies, an outcome Trump has signaled he wants, Miran wrote in a November report. Swapping bullion, which does not yield interest, for foreign government bonds would also create an additional income stream for the government, he added.
While it’s probably statutorily permissible, selling national bullion reserves to buy foreign exchange instruments could be politically costly, Miran wrote. Offloading even a portion of the 8,133 metric tons of gold held by the US government would likely hurt gold prices.
Revaluing American gold reserves only requires the assent of Congress, so it’s “technically very doable,” Nicky Shiels, head of research and metals strategy at MKS Pamp SA, wrote in an note. While a revaluation would raise gold’s profile in the US and globally, if those reserves were subsequently sold to generate seed capital for a new sovereign wealth fund it would be “extremely bearish” for gold prices, Shiels wrote.
Zachary Griffiths, head of investment grade and macro strategy at CreditSights Inc., said revaluing gold stocks “might be a viable consideration if we had a debt problem, but we really have a deficit problem. It’s kind of crazy to say $800 to $900 billion doesn’t do a whole lot for us over the longer run, but it’s pretty much a fact.”
Yawning fiscal deficits, currently nearly 7% of US gross domestic product, are one of the reasons investors flock to bullion to seek safety. That has helped drive gold prices to repeated record highs since last year. Total US federal debt held by the public now stands at nearly $29 trillion.
“To use ‘a trick’ to try to plug at least the near-term deficit, I think the risk associated with that is far greater than any near-term benefit,” Griffiths said. “It seems desperate and shows an unwillingness to address the source of the problem, which is our outlays and revenues are way out of whack.”
A little over half of the Treasury’s gold reserves are held at the US Bullion Depository at Fort Knox, Kentucky, where gold was transferred in from New York and Philadelphia the 1930s, in part to make it less vulnerable to foreign military attack via the Eastern Seaboard. Much of the rest of the bullion is held in facilities in Denver and West Point, New York.