Report on Emptying The Coffers

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To save time, I'll not talk to long. Yes, we are going to be back with The Bullion Report, and the topic today will be:

Emptying the Coffers?

Presidential hopeful Ron Paul recently made headlines by suggesting that the US sell gold holdings to try to curb debt issues. The government has been butting its head against the debt ceiling, which will likely be raised shortly, so why would selling be a good idea in Paul’s eyes? More importantly, what would compel a nation to sell bullion assets and would it be a good idea?


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First let’s dispense with the reasons behind the suggestion. The US is fumbling beneath the weight of substantial federal debt. So heavy is the burden that the country was recently threatened by a downgraded outlook on credit-worthiness. This was no joke, as the idea of one of the globe’s biggest financial machines being downgraded was enough to send most investors running for cover. The debt ceiling of $14.294 trillion has been reached, and as of the middle of May, US Treasury Secretary Timothy Geithner is in a position where he has twice asked for the lid to be lifted. The trouble now is that Congress may have to look at some extraordinary measures to get funds, including federal employee payroll trimming. When the debt reaches its ceiling, the tarnish on our reputation is pretty visible. That is why the outlook for the nation was lowered. Foreign holders of our debt won’t want to take the risk that the US will falter, and the strength of the US dollar comes into question.

In an attempt to resurrect our global reputation, Ron Paul is basically suggesting that the government sell gold holdings to take care of a chunk of that debt. There are other things that the Treasury could sell, including land, but from the congressman’s perspective, the gold in Fort Knox is “just sitting there.” Gold prices are at high levels compared to other dates in recent history which furthers the argument that selling at all would mean selling now when prices are high. Most banks and governments have some form of bullion holdings and the US has oodles. According to IMF data, we hold about 8,000 or so metric tons at least (as of the late 1990s.) Conspiracy theories aside, that is. So why not sell some when prices are over $1,500 a troy ounce?

The answer is a little delicate – how do you know when it is the right time, if at all, for a bank to sell? Famously, some leaders made potential blunders when they decided to sell gold holdings. Australia’s bank famously sold the majority of its holdings in the late 1990s because the bank’s board didn’t believe that prices were going anywhere. They also argued.....

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