Although previously linked to gold, the dollar has been the dominant global reserve currency since the 1920s, when it assumed this role from the pound sterling. Already by the end of the nineteenth century, the US economy had surpassed that of the United Kingdom in both industrial power and agricultural output. The British Empire in its entirety was still much larger; however, the cost of maintaining it was vast and growing, amid regional instability and growing military commitments.
The pound sterling assumed global reserve status following the hard-won victory over Napoleonic France in the early nineteenth century. For decades, it had been rather touch-and-go as to whether Britain or France would emerge victorious on the continent and, hence, have the upper hand when it came to expanding the colonial empires that both countries had acquired over the course of the prior two centuries. With Napoleon vanquished, Britain had a relatively free hand in much of the world, with the notable exceptions of the Americas and central Asia. It was not for want of trying, however. Britain took on the young United States for a second time in 1812, only to be fought, yet again, to a stalemate. And Britain had a go at Russia in Crimea in the mid-1800s, which turned out more of a defeat, as did its occupation of Afghanistan.
By 1907, as a result of a series of crises in which both the British and French began to regard their respective empires as under threat from an increasingly powerful, unified, and assertive Germany, there was a realignment in European geopolitics. Both the British and French allied with Russia to keep Germany contained (or eingekreist— encircled, from the German perspective). When Russia and Germany subsequently clashed in August 1914 over how to respond to the assassination of Austrian Archduke (and heir to the throne) Franz Ferdinand, a general European war broke out.
Regardless of who was most responsible for starting it, World War I was hugely expensive and destructive for all European participants and, tragically, killed or severely injured a substantial portion of the young, productive British workforce. By contrast, although the United States entered the war in 1917, it did so from a position of relative strength, with both sides already nearing exhaustion. By late 1918, US troops began heading home. Although Britain won the war, its government finances did not. By the early-1920s, it was increasingly clear that Britain’s economy was struggling to grow while shouldering the twin financial burdens of servicing the huge war debt and maintaining the vast overseas empire.
Having abandoned the gold standard and inflated the currency to help finance the war, Britain did attempt to return to gold in 1925 (although this was poorly executed, as it happens, as we discuss at some length later). Yet the writing was on the wall. Also on the gold standard, yet now with a much larger economy and far sounder government finances behind it, the US dollar was used increasingly in international transactions and as a reserve currency for the global banking system. When in 1931 the British retreated from their return to gold and devalued the pound sterling versus the dollar, it was an acknowledgment of what had been occurring beneath the surface of the global economy for years. A new monetary equilibrium had been found with the dollar, not the pound sterling, at the center.
Let’s return to Nash and consider how World War I changed the environment in which the game of global monetary relations was being played. One player, Britain, found its economic position severely weakened. Another, the United States, continued to grow rapidly. Not only was the population growing, so was per capita income. As for other countries, most of them now found they were trading relatively more with the larger and more rapidly growing United States and relatively less with the smaller and stagnating Britain.
Therefore, it was only natural that more and more trade was not only transacted in dollars but also invoiced and accounted for in dollars. Moreover, with a larger, healthier economy standing behind it, the dollar was now also regarded as a more reliable store of value, less likely to be suddenly devalued (as sterling was in 1914–18 and again in 1931). As such, for managing risk, the dollar was increasingly seen as the natural reference point and reserve to hold against potential loss, the preferred reserve currency.
The dollar reserve standard thus became the new global monetary equilibrium, although, of course, the dollar was backed by gold, at a rate of $20.67 per troy ounce. As the United States became increasingly prosperous in the 1920s—the Roaring 20s— it began to import relatively more and export relatively less to the rest of the world, and the gold reserve began to flow out. In 1926, the United States held an estimated 45 percent of the entire world’s official monetary gold supply (excluding Russia). Yet by the early 1930s, this share fell to under 35 percent.
Following World War II, one consequence of which was a huge accumulation of gold by the United States, the share increased briefly to over 60 percent. Yet once again, as the postwar prosperity set in and the United States began to import and consume more and export relatively less, the share declined steadily thereafter, sinking below 50 percent by the late 1950s. By the mid-1960s, US gold holdings were less than its foreign liabilities. It was precisely this development that so worried the French and other Europeans and led Jacques Rueff, among other economists, to predict the imminent demise of the Bretton Woods system.
The pact between Nixon and Saudi Arabia back in 1973 set the dollar up as the exclusive settlement currency for oil exports, following the collapse of the Bretton Woods Agreement in 1971. Since then, the very few countries that threatened to sell oil for other currencies, notably Iraq under Saddam Hussein, and Libya under Colonel Gaddafi, have met with unfortunate accidents. The only countries to successfully challenge the dollar’s oil hegemony have been Russia, China and Iran, but not without adverse consequences. And now, Venezuela is ditching US Imperialism by selling her oil for a range of currencies, excluding US dollars.
Perhaps Venezuela hasn’t been listening. The experiences of Iraq and Libya sent a clear message to other countries about the consequences of denying dollar hegemony. In the case of Iran, the Americans even leant on SWIFT through the EU, the supposedly independent interbank settlement system, to freeze out all transfers involving Iran in 2012. Iran’s currency all but collapsed under this pressure. But tactics of this sort create more resentment than anything else, and have undermined goodwill among non-aligned countries. The Russians, powerful enough to survive America’s financial wrecking tactics, have now set up their own rival to SWIFT, as well as other moves to make them entirely independent of the dollar.
Increasingly, the Russians and Chinese, as well as the Shanghai Cooperation Organisation which they lead, are encouraging oil producers to sell oil for consumption in Asia for Asian currencies, principally the yuan. To achieve this objective China is developing capital markets to improve the yuan’s liquidity and acceptance as a trade medium. However, she knows that she must offer something more than an alternative to the dollar than the yuan, with its shorter and less certain track record. And this is where physical gold comes in, sound money that is no government’s liability, universally recognised as such even by those that publicly deny its monetary credentials.
China long knew gold would be central to her geopolitical strategy as well as her own long-term security. In the last few years, she has dominated physical markets. She is the largest gold mining nation by far. There can be no doubt she has accumulated substantial undeclared gold reserves since 1983, when the central bank was first appointed for this purpose. She is on the verge of offering oil producers the facility in the Shanghai futures markets to swap oil for yuan and yuan for gold, sourced from outside China. There can be little doubt that oil producers will see this as an attractive alternative to the dollar. Russia and Iran are already signed up. Other countries, such as Venezuela, heavily dependent on Chinese oil demand, appear to be in the process of doing so. But the real prize will be Saudi Arabia.
Saudi Arabia needs money, and if Western capital markets do not provide it in return for a minority stake in Aramco, there’s little doubt the Chinese will strike a deal. The policy of turning the world’s oil suppliers away from the dollar and in favour of the yuan for exports to China has made significant progress in recent months. The next key development will be the full implementation of a yuan futures contract for oil, and that could be introduced in the coming months. When that happens, the dollar’s function as the sole reserve currency will effectively cease.
All the hype during President Trump’s first hundred days, when he behaved like a latter-day Franklin Roosevelt in a flurry of initial activity, is being replaced by cold reality. The dollar first rose, and then started to decline. The fiscal benefits of tax reform remain pie in the sky. The stimulus to American industry from tariffs and import duties on imported goods, on second thoughts, is no stimulus, and merely raises the costs faced by consumers. Most of The Donald’s anti-establishment, reforming team has resigned, replaced in the White House by three establishment generals. In a banana republic, the press would call it a military coup. Make America Great Again is now not much more than an empty phrase.
President Trump’s election appears to have set up the dollar for a substantial decline, as this reality sinks in. His policies are being exposed as bombastic and autarkic. By isolating America from the benefits of world trade, she gets almost no benefit from the rapid transformation progressing the Asian continent from economic backwater to economic powerhouse.
Meanwhile, the accumulation of debt is unproductive and a burden on the economy, still financing wasteful government deficits, and inflating consumption. Consumers’ income has failed to keep pace with the cost of living for at least the last two credit cycles. And with the consumer becoming overburdened with a legacy of debt, the economy is struggling, no longer in crisis, but going nowhere.
Those analysts who unwisely think trade protectionism will create American jobs fail to understand that trade deficits arise from a combination of government deficits, the expansion of bank credit, and low savings. Yet these are the policies the government and the Fed are actively pushing for economic recovery. Consequently, the budget deficit next fiscal year is likely to be another $500bn, which we can add to the running total.
For the dollar’s prospects, the most important thing to know is that since 1980 the accumulated deficit on the balance of payments, of which the balance of trade is the major component, will have totalled over $11 trillion by the end of this year. The accumulated balance of payments deficit serves as an indication of the scale of foreign ownership of dollars, only $4.36 trillion of which is identified in central bank reserves around the world. Much of the balance of foreign-owned dollars is owned by businesses, engaged in global trade.
The management of dollar balances is crucial for these businesses’ profitability. They will have noted that on a trade-weighted basis the dollar peaked in January, and since then has lost 7.5%. That is a severe impact on profits. They will be on the alert for further signs of weakness, and will have noted the improving trade prospects for Europe and the Eurozone, which have driven the euro up against the dollar by 15% this year. Furthermore, the Eurozone is running a trade surplus of an estimated €200bn for 2017, leading to an underlying contraction of euros in foreign ownership. The Chinese renminbi (or yuan), has risen 7.3% against the dollar this year, affecting corporations trading with China. Most importantly, it affects oil producers selling into their largest single market. They will be watching the dollar’s progress from here.
There is little doubt that the non-US world owns substantial quantities of the dollar, and can be spooked into selling. For this reason, the poor relative performance of the US economy compared with the more dynamic performances of China, Japan and Europe places the dollar at a severe long-term disadvantage on the foreign exchanges.
Now that gold has become overbought on Comex, the price is vulnerable to being trashed, yet again, by the too-big-to-fail banks. It is a familiar operation in gold futures markets, where speculators buying contracts protect themselves with stop-losses.
All the TBTF banks need is a pause in the speculator’s buying and a little good news (bad for gold). Ideally, the active contract will be running into maturity, so the speculators are forced to put up or shut up: in other words, sell the contract, roll it into another later maturity, or stand for delivery.
Bearing in mind these speculators are running highly leveraged positions, greed turns to fear on a sixpence. The TBTF banks will have supplied the speculators with their longs by going short. From the moment you go long, you are trapped in a trader’s version of Hotel California.
The TBTFs start off sitting on losses, not worrying for them, being TBTF. But they know how to turn it around. Just pick a quiet moment, sell a few billions-worth of contracts, and take out all those stops. It is a cycle of events that happens time after time, a money machine for the bullion banks. Just occasionally, it goes wrong, because the physical markets take back control of pricing away from futures markets. But what the heck, these guys will be bailed out by the Fed, or the Bank of England. Meanwhile their traders have made bonuses quarter after quarter.
Speculators fall for it every time. Sooner or later, they argue, the TBTF traders will get their comeuppance. But now that gold has risen $140 in less than two months, we are due for another rinse cycle in the Comex washing machine. Gold is as overbought as it has ever been. The punters are due to be cleaned out again. Only a fool would bet otherwise. But, this time it just might be different.
For this time to be different, the dollar will have to continue to weaken. Not much else can save the bulls from the TBTF bullion banks. This article discusses the prospects for the dollar, and concludes that, other than a technical rally in the short-term, the prospects for the dollar are not good.
There are four fronts opening that could drive the dollar down: the stagnating US economy, oil producer nations discarding the dollar, the interests of China moving towards abandoning the dollar, and lastly, the commercial interests of the major bullion banks shifting towards the China story. We shall consider each in turn.
Why does the presstitute media have an interest in the gold stored at the Federal Reserve Bank New York… or does it?
An article, authored by Katy Burn, for the WSJ, “6,200 Tons of Missing Gold?”, and transmitted through Fox News, reached out to some of the most studied people in the world about gold being stored in the FRBNY, one would presume, to gather some insight as to the gold being stored in this location. Why is the mainstream media reaching out to people that are known to research, question and distrust the official narrative regarding gold being held by the Federal Reserve?
The article begins with Ronan Manly and right from the start it seems like a story that would never see the light of day in mainstream media.
The Fed tells visitors its basement vault holds the world’s biggest official gold stash and values it at $240 billion to $260 billion.
But “no one at all can be sure the gold is really there except Fed employees with access,” said Ronan Manly, a precious-metals analyst at gold dealer BullionStar in Singapore. If it is all there, he said, the central bank has “never in its history provided any proof.” Source
Is the mainstream media attempting to paint alternative financial news writers out to be nothing more theorist? If the author of this article wanted “credible” accounts why were these people contacted and given the mic?
Other theorists suspect the gold beneath the New York Fed’s headquarters at 33 Liberty St. may be gold-plated fakes. Some conspiracy-minded investors think the Fed has been secretly leasing out the gold to manipulate prices. Source
In 2009 we learned there were some very questionable scenarios that played out involving the Federal Reserve and our national gold. Rob Kirby, Kirby Analytics, pointed out the very distinct possibility of 640,000 400/oz tungsten “salted” gold bars (gold-plated bars) that were ordered and delivered to Ft. Knox. These bars have somehow disappeared into the ether as they have never left Ft. Knox. There were approximately 1.3 million 400/oz tungsten bars ordered and the location of the remaining 700,000+ bars is still unknown or if they are “gold-plated”.
The author turns to John Embry, one of the most respected voices in the precious metals space, to get his take.
“There has to have been a central bank spewing their gold into the market,” said John Embry, an investment strategist for Sprott Asset Management in Toronto until 2014 who once managed its gold fund.
“The gold price didn’t act right” during the time he was watching it and the likely explanation for the movement was Fed action, said Mr. Embry. Source
It is a well documented fact the Federal Reserve, in conjunction with the U.S. Treasury Department, utilizing the highly secretive Exchange Stabilization Fund (ESF) has the authority to interject in any market, at any time anywhere on the planet with absolutely no oversight or regulation. Combine this with President Reagan introducing the “Working Group on Financial Markets” better known as the “Plunge Protection Team” and it should be clear to anyone since 1988 the “markets” have been completely manipulated or said another way – rigged.
When Mr. Embry makes a comment like “the gold price didn’t act right” which is taken out of context with no follow up or another word from Mr. Embry, you can rest assured he was watching a market that was moving up and down in ways that would not be considered “natural market movement”. There is a difference, that can be seen, between rigged market movement and human generated market movement or the difference between natural market movement and algorithm (computer generated) market movement.
If you have been analyzing precious metals markets for more than 40 years, as Mr. Embry has, you should have developed an eye for market anomalies. If not, you probably wouldn’t be in any market for 40+ years! This point is completely negated by the author since there is no follow-up of any kind, while taking the statement out of context.
At this stage of the article it becomes quiet clear the author has been tasked with an old-fashioned hit piece, showing their colors before sharing James Turks’ comments. Mr. Turk is another well seasoned precious metals market analyst with more than 40 years experience as well.
Elaborate theories build on what the Fed doesn’t say about goings-on in its vault’s 122 compartments.
It doesn’t report when bars enter or leave and doesn’t let in outsiders — other than auditors and account holders — to count the bars or review records.
Visitors on vault tours see only a display sample and can’t verify bars up close. Source
The author does admit the gold can not be verified and only a “display” is what anyone outside the “big club” is allowed to see. Even members of the “big club” can’t see the gold, as Germany found out when they requested to see, and audit, their gold in 2013.
When people are left with little or no information regarding a subject as important as our national gold and the size of 8,100+ tons of gold, it is human nature for the mind to ask questions and for intelligent people to begin researching and asking real questions about what is actually happening.
“All you see is the front row of gold bars,” said James Turk, co-founder of Goldmoney, a gold custodian. “There’s no way of knowing how deep the chamber is or how many rows there are.”
Mr. Turk, based in London, believes much of the gold has been “hypothecated,” or lent out to other parties, and then rehypothecated, or lent to multiple parties at once. In doing so, he says, “central banks actually own less gold than people believe.”
Some gold bugs — investors bullish on the yellow metal — think the Fed secretly lends it out to suppress prices, partly to protect the dollar’s value. In theory, the Fed can feed gold into the market through swaps with other countries.
James McShirley, who owns Sulphur Lumber in Sulphur Springs, Ind., and has traded gold, believes investment banks, probably as agents for the Fed, act to lower prices when gold futures gain 1%. “It’s totally logical that in addition to maintaining artificially low interest rates, ” he said, “it would be imperative to keep gold suppressed as an inflationary barometer.” Source
The Federal Reserve leasing/swapping gold with foreign nations is not a theory, it is a fact, as confirmed by GATA in 2009.
The Fed’s September 17 letter to GATA confirming that the Fed has gold swap arrangements can be found here:
While the letter is far from the first official admission of central bank scheming to suppress the price of gold (for documentation of some of these admissions, see http://www.gata.org/node/6242andhttp://www.gata.org/node/7096), it comes at a sensitive time in the currency and gold markets. The U.S. dollar is showing unprecedented weakness, the gold price is showing unprecedented strength, Western European central banks appear to be withdrawing from gold sales and leasing, and the International Monetary Fund is being pressed to take the lead in the gold price suppression scheme by selling gold from its own supposed reserves in the guise of providing financial support for poor nations. Source
It really doesn’t require a lot of brain power to understand why people, the world over, are turning away from mainstream presstitute media. The twisted wording, omitting any follow up and the complete lack of integrity in reporting is all too clear.
“I think the gold they have there is real gold,” he said [James Turk], “but until you do random sampling you don’t know for certain.”
In a 2012 audit of U.S. goldat the Fed’s vault, the U.S. Mint and the Treasury’s Office of Inspector General sent 367 samples to an independent lab for testing. All but three samples came back within 0.13% of the purity recorded by the government, within standard industry tolerance, according to the Mint and Treasury.
Since then, annual government audits of the Fed’s vault have inspected only the locks and joint seals on the compartments to check they haven’t been tampered with, a Mint spokesman said. Source
Is it too much to ask to see my property? Is it too much to ask to have a full, independent audit of my property? When this question was recently ask it was met with sneers and road-blocks. “Too expensive and time consuming” was the response. With an estimated cost between $15 and $60 million that would be the equivalent of 2 to 5 hours of military spending during the ongoing, unConstitutional Iraq invasion, I mean “war”, and no one would die from the “operation”.
The WSJ author demonstrates a slant to discredit some highly respected voices in the precious metals space, but, at the end of the day she only discredits herself by showing her utter contempt for conducting research.
James Turk discusses the ongoing action that we are witnessing in the precious metals space, as well as that seen in Bitcoin. He believes that the time to buy gold and silver are right now and you should be looking to sell your bitcoin, towards the end of 2017.
The bitcoin revolution has caught the attention of traditional banks and hedge funds. Financial companies are working on a platform that will use blockchain technology to verify and record transactions in gold trading.
Exchange owner CME Group, TradeWind Markets, and financial technology firm Paxos are working to make the $27 billion-a-day gold market digital.
The companies say it will add more transparency and security to the gold market.
“Digital gold would take market share away from other gold instruments: futures, physical gold bullion, gold ETFs,” Ebele Kemery, head of energy investing at JPMorgan Asset Management told Bloomberg.
Blockchain can be quite handy in gold trading, as it is safe and fast, says Pierluigi Paganini, CTO at CSE Cybsec Enterprise.
“It is quite secure from the technical perspective, but you have to trust the entire system. It is for sure faster than traditional trading, and it is cost-effective,” he told RT.
“It overcomes the difficulties like moving gold around or transporting it quickly,” Paganini added.
James Turk, the founder of GoldMoney and Lend Borrow Trust, told RT that people will still stick to traditional gold bullion, as it is physical, unlike bitcoin and other cryptocurrencies. Also, blockchain will not solve the problem of the physical delivery of gold.
“Physical gold is a product of nature that has served as money for 5,000 years. Bitcoin is a man-made product with less than ten years of history. Also, gold is something you can hold in your hand, whereas bitcoin is essentially just a mathematical formula,” he said.
Bitcoin, one of the first digital currencies to use blockchain, has more than quadrupled in price this year to more than $4,300. A single token is worth 3.3 troy ounces of gold as of Friday.
Eighty feet below the streets of lower Manhattan, a Federal Reserve vault protected by armed guards contains about 6,200 tons of gold.
Or doesn't.
The Fed tells visitors its basement vault holds the world's biggest official gold stash and values it at $240 billion to $260 billion.
But "no one at all can be sure the gold is really there except Fed employees with access," said Ronan Manly, a precious-metals analyst at gold dealer BullionStar in Singapore. If it is all there, he said, the central bank has "never in its history provided any proof."
Mr. Manly is among gold aficionados who wonder if the bank is hiding something about what it's hiding.
Other theorists suspect the gold beneath the New York Fed's headquarters at 33 Liberty St. may be gold-plated fakes. Some conspiracy-minded investors think the Fed has been secretly leasing out the gold to manipulate prices.
"There has to have been a central bank spewing their gold into the market," said John Embry, an investment strategist for Sprott Asset Management in Toronto until 2014 who once managed its gold fund.
"The gold price didn't act right" during the time he was watching it and the likely explanation for the movement was Fed action, said Mr. Embry.
The Fed declined to comment. It has been secretive about the contents of the vault and in the past has said it can't comment on individual customer accounts due to confidentiality agreements.
Former Fed Chairman Alan Greenspan said in a July interview: "When you deposit your funds in a bank, should that bank make your account balances available to whomever asks?"
Seeking a better glimpse inside the vault and at Fed procedures and records, The Wall Street Journal filed Freedom-of-Information requests with the New York Fed. Among the Journal's findings, from a heavily redacted tour-guide manual provided by the Fed: Tour guides are informed that "visitors are excitable" and should be asked to "please keep their voices down."
Three Fed staffers must be present when gold is moved or a compartment opened, even to change a lightbulb, and no attempts have been made to break in, documents state.
New York Fed President William Dudley told a March gathering in Queens, N.Y., that the fictional raid by drilling through from a subway tunnel in the 1995 movie "Die Hard With a Vengeance" was far-fetched.
A guide on one tour gave other details: Inside is enough oxygen for a person to survive 72 hours, should someone get trapped; custodians wear magnesium shoe covers to help prevent injuries, should they drop 27-pound bars; the Fed charges $1.75 a bar to move gold but nothing to store it; most of the gold is owned by foreign governments.
Along with the foreign gold, the Fed's Manhattan vault holds about 5% of America's roughly $11 billion in gold reserves and coin, valued at the statutory rate of $42.22 per fine troy ounce, according to the U.S. Mint. The U.S. government keeps the rest in Denver, Fort Knox, Ky., and West Point, N.Y.
Elaborate theories build on what the Fed doesn't say about goings-on in its vault's 122 compartments.
It doesn't report when bars enter or leave and doesn't let in outsiders -- other than auditors and account holders -- to count the bars or review records.
Visitors on vault tours see only a display sample and can't verify bars up close.
"All you see is the front row of gold bars," said James Turk, co-founder of Goldmoney, a gold custodian. "There's no way of knowing how deep the chamber is or how many rows there are."
Mr. Turk, based in London, believes much of the gold has been "hypothecated," or lent out to other parties, and then rehypothecated, or lent to multiple parties at once. In doing so, he says, "central banks actually own less gold than people believe."
Some gold bugs -- investors bullish on the yellow metal -- think the Fed secretly lends it out to suppress prices, partly to protect the dollar's value. In theory, the Fed can feed gold into the market through swaps with other countries.
James McShirley, who owns Sulphur Lumber in Sulphur Springs, Ind., and has traded gold, believes investment banks, probably as agents for the Fed, act to lower prices when gold futures gain 1%. "It's totally logical that in addition to maintaining artificially low interest rates, " he said, "it would be imperative to keep gold suppressed as an inflationary barometer."
Then there's the purity question. Mr. Turk said there are "questions in gold circles as to what's in an actual bar." One theory, he said: They could be gold-plated tungsten, which would weigh almost the same.
"I think the gold they have there is real gold," he said, "but until you do random sampling you don't know for certain."
In a 2012 audit of U.S. gold at the Fed's vault, the U.S. Mint and the Treasury's Office of Inspector General sent 367 samples to an independent lab for testing. All but three samples came back within 0.13% of the purity recorded by the government, within standard industry tolerance, according to the Mint and Treasury.
Since then, annual government audits of the Fed's vault have inspected only the locks and joint seals on the compartments to check they haven't been tampered with, a Mint spokesman said.
That isn't enough, said Peter Boehringer, founder of the German Precious Metals Society. The problem, he said, is the "complete lack of a transparent, full, independent, external audit in the Fed's vaults by a sworn-in auditor."
New legislation, nicknamed the "Audit the Fed" bill, could allow the Government Accountability Office to audit the Fed's vault, said a spokesman for the bill's Senate sponsor, Rand Paul (R., Ky.,). GAO lawyers wouldn't speculate on the bill's reach. Mr. Paul's spokesman said the Senator has arranged a personal visit to Fort Knox this fall.
Former U.S. Rep. Ron Paul, the senator's father, has been outspoken about what he says is taxpayers' need for more transparency about gold from the Fed. "Even if you could walk into that vault and see a lot of gold, you wouldn't know...whether it's been loaned out or sold," he said. "They haven't convinced me that we have total control of it."
Write to Katy Burne at katy.burne@wsj.com
Eighty feet below the streets of lower Manhattan, a Federal Reserve vault protected by armed guards contains about 6,200 tons of gold.
Or doesn't.
The Fed tells visitors its basement vault holds the world's biggest official gold stash and values it at $240 billion to $260 billion.
But "no one at all can be sure the gold is really there except Fed employees with access," said Ronan Manly, a precious-metals analyst at gold dealer BullionStar in Singapore. If it is all there, he said, the central bank has "never in its history provided any proof."
Mr. Manly is among gold aficionados who wonder if the bank is hiding something about what it's hiding.
Other theorists suspect the gold beneath the New York Fed's headquarters at 33 Liberty St. may be gold-plated fakes. Some conspiracy-minded investors think the Fed has been secretly leasing out the gold to manipulate prices.
"There has to have been a central bank spewing their gold into the market," said John Embry, an investment strategist for Sprott Asset Management in Toronto until 2014 who once managed its gold fund.
"The gold price didn't act right" during the time he was watching it and the likely explanation for the movement was Fed action, said Mr. Embry.
The Fed declined to comment. It has been secretive about the contents of the vault and in the past has said it can't comment on individual customer accounts due to confidentiality agreements.
Former Fed Chairman Alan Greenspan said in a July interview: "When you deposit your funds in a bank, should that bank make your account balances available to whomever asks?"
Seeking a better glimpse inside the vault and at Fed procedures and records, The Wall Street Journal filed Freedom-of-Information requests with the New York Fed. Among the Journal's findings, from a heavily redacted tour-guide manual provided by the Fed: Tour guides are informed that "visitors are excitable" and should be asked to "please keep their voices down."
Three Fed staffers must be present when gold is moved or a compartment opened, even to change a lightbulb, and no attempts have been made to break in, documents state.
New York Fed President William Dudley told a March gathering in Queens, N.Y., that the fictional raid by drilling through from a subway tunnel in the 1995 movie "Die Hard With a Vengeance" was far-fetched.
A guide on one tour gave other details: Inside is enough oxygen for a person to survive 72 hours, should someone get trapped; custodians wear magnesium shoe covers to help prevent injuries, should they drop 27-pound bars; the Fed charges $1.75 a bar to move gold but nothing to store it; most of the gold is owned by foreign governments.
Along with the foreign gold, the Fed's Manhattan vault holds about 5% of America's roughly $11 billion in gold reserves and coin, valued at the statutory rate of $42.22 per fine troy ounce, according to the U.S. Mint. The U.S. government keeps the rest in Denver, Fort Knox, Ky., and West Point, N.Y.
Elaborate theories build on what the Fed doesn't say about goings-on in its vault's 122 compartments.
It doesn't report when bars enter or leave and doesn't let in outsiders -- other than auditors and account holders -- to count the bars or review records.
Visitors on vault tours see only a display sample and can't verify bars up close.
"All you see is the front row of gold bars," said James Turk, co-founder of Goldmoney, a gold custodian. "There's no way of knowing how deep the chamber is or how many rows there are."
Mr. Turk, based in London, believes much of the gold has been "hypothecated," or lent out to other parties, and then rehypothecated, or lent to multiple parties at once. In doing so, he says, "central banks actually own less gold than people believe."
Some gold bugs -- investors bullish on the yellow metal -- think the Fed secretly lends it out to suppress prices, partly to protect the dollar's value. In theory, the Fed can feed gold into the market through swaps with other countries.
James McShirley, who owns Sulphur Lumber in Sulphur Springs, Ind., and has traded gold, believes investment banks, probably as agents for the Fed, act to lower prices when gold futures gain 1%. "It's totally logical that in addition to maintaining artificially low interest rates, " he said, "it would be imperative to keep gold suppressed as an inflationary barometer."
Then there's the purity question. Mr. Turk said there are "questions in gold circles as to what's in an actual bar." One theory, he said: They could be gold-plated tungsten, which would weigh almost the same.
"I think the gold they have there is real gold," he said, "but until you do random sampling you don't know for certain."
In a 2012 audit of U.S. gold at the Fed's vault, the U.S. Mint and the Treasury's Office of Inspector General sent 367 samples to an independent lab for testing. All but three samples came back within 0.13% of the purity recorded by the government, within standard industry tolerance, according to the Mint and Treasury.
Since then, annual government audits of the Fed's vault have inspected only the locks and joint seals on the compartments to check they haven't been tampered with, a Mint spokesman said.
That isn't enough, said Peter Boehringer, founder of the German Precious Metals Society. The problem, he said, is the "complete lack of a transparent, full, independent, external audit in the Fed's vaults by a sworn-in auditor."
New legislation, nicknamed the "Audit the Fed" bill, could allow the Government Accountability Office to audit the Fed's vault, said a spokesman for the bill's Senate sponsor, Rand Paul (R., Ky.,). GAO lawyers wouldn't speculate on the bill's reach. Mr. Paul's spokesman said the Senator has arranged a personal visit to Fort Knox this fall.
Former U.S. Rep. Ron Paul, the senator's father, has been outspoken about what he says is taxpayers' need for more transparency about gold from the Fed. "Even if you could walk into that vault and see a lot of gold, you wouldn't know...whether it's been loaned out or sold," he said. "They haven't convinced me that we have total control of it."
