Tuesday, June 18, 2013

The Truth about Ben Bernanke's Audits and the Fed's Supply of Gold

On the home page, of the Board of Governors of the Federal Reserve web site, sitsa box. Inside the box a question is asked and answered: Does the Fed Get Audited? YES.

The box also includes a link to this, an FAQ about the audits. The FAQ includes a two click away link to what is called by the FAQ, the Feds "balance sheet."

It should be clear that this "balance sheet" is unlike any in corporate America. Indeed, H.4.1, as the release is officially known, refers to itself as "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks," rather than a balance sheet. There are many curious things about this "Condition Statement," but today I want to focus on just one. The gold that is listed on the statement.

If we look at Table 1 of this statement, we see that the Fed lists its gold "stock" as being equal to $11,041 million.

By the time we get to Table 8 of the same statement, we see gold as reduced a bit to $11,038 million, but more important, instead of continuing to be listed as "gold stock," it is listed as being part of the "Gold certificate account".

Table 9 lists the gold again as being in the "Gold certificate account." Table 9 is identified as the "Statement of Condition of Each Federal Reserve Bank, June 12, 2013" and has a branch by branch breakdown of where these gold certificates physically are. The New York Fed has the most with a reported $ 3,925 million in gold certificates and the Minneapolis Fed having the smallest amount, $190 million.

But, if it wasn't clear by Table 8, it sure is clear by Table 9, that unlike in Table 1, the Fed is talking gold certificates and not physical gold.

The Fed once more in its final table of the statement of condition, Table 10,aka the Collateral Held against Federal Reserve Notes: Federal Reserve Agents' Accounts table, lists $11,038 million in gold certificates. 

Thus, the Fed in fact does not hold any physical gold (outside of foreigners gold held at the New York Fed). The gold that is held, according to the Fed as "collateral against Federal Reserve Notes" is really gold certificates. Where do these certificates come from? This Fed statement does not tell us. But with a bit of internet snooping, we can reach a pretty good guess that the certificates are created by the Treasury. 

In a very confusing Treasury statement, Status Report of U.S. Treasury-Owned Gold, the Treasury reports that the Fed holds $564,890,013.03 worth of gold (based on a gold valuation of $42.2222 per ounce). But this appears to not be gold owned by the Fed, but gold held by the Fed for foreigners. Putting this on the statement is not much different than the landlord of Tiffany's putting on his personal "statement of condition" the diamonds owned by Tiffany.

However, if we move further down this Treasury statement, we see (my highlight):

Total - Treasury-Owned Gold 261,498,926.247 $11,041,059,958.16

So there we have it, the gold certificates listed by the Fed match up exactly with the Treasury owned gold. Mystery solved, the gold that the Fed claims is collateral for the Federal Reserve Notes is held by the Treasury. Or is the mystery really solved? If we look at the  U.S. International Reserve Position of the Treasury as of January 25, 2013, we see the $11 billion in gold listed, but then this curious note in parentheses in the statement:  "including gold deposits and, if appropriate, gold swapped". So the real question becomes: has any of the gold been swapped out, to whom, and under what conditions? One would think some or all has been swapped out otherwise the note wouldn't be there in the first place.

So here is the current situation with regard to Fed owned gold. It is not as Table  1 of the Fed's Condition Statement records a "stock" of gold. It is, as Tables 8, 9 and 10, report merely gold certificates held by the Fed. A little more digging shows the Treasury as the source of the certificates, but that a note to a Treasury statement indicates the gold may have been swapped out, but exactly how much has been swapped with whom, for what, is undisclosed.

Thus, based on public information, it is not clear if Ben Bernanke is even aware of how much gold backs up the Treasury certificates it reports as it's gold "stock". It may be a fair question to ask Bernanke in his upcoming press conference or in the next Congressional hearing if his "audits," that are touted on the front page of the Fed's web site , have actually sought to determine how much gold the Treasury has to back up the gold certificates the Fed has on its balance sheet. Or is he not curious and thinks a front page trumpeting of Fed audits can be made without knowing the true backing of the gold behind he Treasury certificates?


  1. "in his upcoming press conference"

    Ummm...is that a hint?

    1. Bob. He started soing press confrences every quarter like a year ago. This hint is refering to that.

  2. The first half of this post exceeds the boundaries of the layout of the page for some reason.