July 23, 2001 - James Turk
This past December I wrote (" The Smoking Gun") about my discovery of a discrepancy between two reports that tracked the status of the US Gold Reserve. The Federal Reserve prepares both reports. The first report is the balance sheet of the Federal Reserve, and the item of note is an entry entitled "Gold Stock". Because of its ownership of the Gold Certificates issued by the US Treasury, the Federal Reserve has a claim to the total US Gold Reserve, reportedly 261.6 million ounces. Therefore, this liability of the US Treasury - evidenced by its Gold Certificates to pay gold - is an asset on the balance sheet of the Federal Reserve.
The second report prepared by the Federal Reserve presents the US Reserve Assets, which records all of the Treasury's international monetary assets. These include the Treasury's holdings of foreign currencies, SDR's issued by the International Monetary Fund, and gold. The item of note in this report is also the gold stock, which again is this same US Gold Reserve.
Thus, it is clear that the gold held by the US Treasury - the US Gold Reserve - does double-duty. First, it provides a reserve at the Federal Reserve. In other words, because the Gold Certificates are an asset of the Fed, this claim to the US Gold Reserve imparts value to the liabilities of the Fed, of which the most important are the Federal Reserve Notes that we carry in our pocket as cash currency. But there is a second use as well because the US Gold Reserve is also recorded as part of the international monetary assets of the US Treasury, the total of which are a measure of this nation's financial strength relative to other countries.
The important point is that last December I observed that the weight of gold in these two reports was different, and I explained why each weight should always be identical. Thus, the Gold Certificates owned by the Federal Reserve should always be equal to the US Gold Reserves reported as part of the US Reserve Assets. They are the one and the same hoard of gold, and there is a body of federal law saying so. Furthermore, we have been repeatedly informed by various Treasury and Federal Reserve officials that the US government does not intervene in the gold market, that it does not trade gold for its account or the account of others, and that the US Gold Reserve remains in storage at Fort Knox and the other depositories. If their contention was true, then why are these two reports showing different weights for the same hoard of gold?
The answer I pointed out last December is that the clandestine activities of the Exchange Stabilization Fund (ESF) belie the pronouncements of Treasury officials about that department's so-stated inactivity in the gold market. We know that the ESF is active in the gold market because the Federal Reserve says so in its report of the US Reserve Assets.
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