Their full reponse would have made Bernie Madoff proud. I reproduce it in full below and also reproduce my follow up "Herman Cain questions".
The Fed's response (My bold):
Dear Mr. Wenzel:My follow-up:
Thank you for your inquiry. The Federal Reserve Board does not own gold. Therefore, the Department of the Treasury is best situated to respond to your questions. With regard to your reference to gold stocks, the information to follow, from the Board's website, should be helpful. It appears in an interactive guide to our weekly balance sheet (the H.4.1.) and describes why we have a line item on Table 1 for "Gold Stocks."
"The gold stock of the United States is held by the Treasury and consists of gold that has been monetized: the Treasury has issued certificates reflecting the value of the gold to the Federal Reserve in return for a credit for the same dollar value to the Treasury's accounts. The gold stock also includes unmonetized gold, against which certificates have not been issued by the Treasury (although virtually all the Treasury's gold has been monetized since 1974).
The value of the gold stock is recorded on Federal Reserve and Treasury books at $42.22 per troy ounce, the so-called official U.S. government price established by international agreement and confirmed by Congress in 1973. If the Treasury buys or sells gold, however, the purchase or sale is executed at market prices.
Acquisition of gold, and its monetization by the Treasury, can affect reserve balances at depository institutions. Acquisition increases reserve balances. "Gold stock" and "Treasury cash holdings" rise, but the "U.S. Treasury, general account" balance falls. Monetization leaves the gold stock unchanged, but reduces Treasury cash holdings and increases the Treasury's general account. Monetization itself does not alter reserve balances, but these balances increase when the Treasury spends the proceeds or shifts the proceeds to the accounts that it maintains with depository institutions."
There is a separate line item on Table 8 of the H.4.1 for Gold Certificates. Here's the text that describes that entry:
"The gold certificate account reflects the receipts issued to the Reserve Banks by the Treasury against its gold holdings. In return, the Reserve Banks issue an equal value of credits to the general account of the Treasury, computed at the statutory price of $42.22 per troy ounce. Because nearly all of the gold held by the Treasury has been monetized in this fashion, the Federal Reserve Banks' gold certificate account of $11 billion represents the nation's entire official gold stock."
Again, we thank you for your question. I hope this information is helpful.
Sincerely, SKS, Board Staff
Thank you for your quick response to my email. Your response raises a number of questions with regard to what you refer to as "our weekly balance sheet".
I have looked at balance sheets for decades and have never come across a "balance sheet" such as the type posted weekly by the Federal Reserve. Has any outside accounting firm looked at what you call a "balance sheet" and stated that it is an acceptable "balance sheet" that conforms to generally accepted accounting principles or to any accounting principles in any fashion?
Further, I am curious at to why, in Table 1, the reference to the certificates states only "gold stock" without a footnote indicating that it is not in fact gold stock but certificates, when explanatory footnotes appear on many other items. What is the thinking behind the lack of a full explanation in the top section of what you refer to as a "balance sheet"? I have never seen such a failure to indicate such footnote on a top line of a balance sheet before.
As for the gold certificates, could you please tell me how often the Federal Reserve conducts an audit of the gold held by the Treasury that backs up what you (the Fed) call "receipts"?
Further I note that the Treasury "Balance Sheet" lists gold holdings of $11,041 million. The same as the Federal Reserve. This would indicate that all the gold held by the Treasury is held for the benefit of the Federal Reserve.
However, the Treasury gold position on the "Balance Sheet" also contains this footnote:
(4) gold (including gold deposits and, if appropriate, gold swapped)3
Has anyone at the Federal Reserve contacted the Treasury to determine if the Treasury has swapped out its gold? In other words, has anyone at the Federal Reserve attempted to determine that the Federal Reserve holds "gold certificates" that, indeed, can be converted to gold?
If it has been determined that the Treasury does not hold the gold to back up the
certificates or has swapped the gold out, shouldn't this be noted on what you
refer to as a "balance sheet", especially given that the Treasury on its balance
sheet has such a preliminary footnote already?
Thank you for your quick response to my "Herman Cain questions" and I trust these additional "Herman Cain questions" will produce as rapid a response.