Transcription
There has been some speculation amongst the gold circle that we could see gold revaluation, and that it could happen under the Trump administration more likely than any other administration.
And as a background for our viewers, the US Treasury still values its reported 261 million ounces of gold at $42.22 per ounce. That was a number set back in 1973, details that of course you provide in many of your other books. Um, but the idea of a possible gold revaluation is getting some buzz.
The Federal Reserve last year released a research paper which analyzed how other countries have revalued their gold. They didn't explicitly recommend that the US revalue its gold, but it did lay out in detail how five other countries have done it. Um, then there have been uh a lot of people in the president's inner circle talking about it.
And I I like to point out that there's Donald Trump Jr., the president's son, who has explicitly stated that uh his father's administration is exploring a powerful economic tool under the Gold Reserve Act to repric America's gold. Um, and if we have that ad, I'd like to pull it up now. Um, there it is.
Uh, he is now granted speaking in his capacity for a gold company. But he says, "Do you know the US government has the legal power to change the price of gold with a stroke of a pen?" And then he goes on to say, "My father's administration is exploring a powerful economic tool, the Gold Reserve Act, and gives the Treasury the authority to revalue America's gold reserves on the national balance sheet from their outdated book value of $42 to current market prices."
Um, he goes on and on saying, um, that this would signal gold's renewed importance in our monetary system, prepare America for a new era of sound money principles. Uh, Treasury Secretary Scott Bent, a well-known gold bug, has also um floated, but then somewhat retracted the idea of a gold revaluation and monetizing the asset side of the business uh of of the balance sheet rather.
Uh, Jim, in terms of a catalyst for gold price surge, how realistic is a gold revaluation in your opinion? What what percentage or chance do you think that has happening under the Trump administration?
>> Um there's a reasonable chance that that will happen. Your your description is exactly right, Michelle, and they have been talking about it. And you know, Trump is full of surprises. So it wouldn't it wouldn't surprise me to see them do that. But I think it's helpful for the viewers to understand the little bit of the background, what it means and what it doesn't mean um before, you know, people get kind of too spun up about it.
So for this you have to go all the way back to 1933. Uh at that time the Federal Reserve actually held most of the gold. It was owned it was owned by the the Federal Reserve system which is of course privately owned by the banks. Um FDR took the gold from the Fed and gave it to the US Treasury. And you're right today that 8,133 metric tons US gold reserve is owned by the US Treasury. Although I point out that uh people think it's all in Fort Knox. About half of it's in Fort Knox. The other half is in West Point. Uh they're both army forts. So I I say, well, actually the army has the gold, but it's on their property. But but you're right. Uh it's owned by the US Treasury.
Now, the fifth amendment of the Constitution, US Constitution, says that the government may not take private property for public use without providing proper compensation or just compensation. Okay. So when when FDR took the Gulf from the Fed and gave it to the Treasury, that's from private to public. What did they give the Fed in the form of compensation? The answer is they gave them a piece of paper. It's called the gold certificate and it's still on the balance sheet of the Federal Reserve. It's public record. You can go to the Fed website, hunt around a little bit, find the balance sheet. And on the asset side, the first item is gold certificate. It's not gold. It's a piece of paper supposedly backed by gold, but it's what the Fed got in exchange for handing over the physical gold. And that is valued at $42.22 22 cents an ounce which is as you described and then of course the Treasury carries the gold on their books at the same price.
Now what would could the Treasury revalue the price of gold to the current market you know roughly $5,000 an ounce or any value in between? The answer is they could and it's been done before. This was actually done in the Eisenhower administration. Again that's a little historical footnote but not not that many uh not that many people know about it. Um but it's it's really just an accounting entry.
What would happen is the um the Treasury would call the Fed and say, "Hey Fed, you know that gold certificate you got uh mark it up to the current market." So from 40 roughly $42 an ounce to $5,000 an ounce. And now you've you've increased the balance sheet of the Fed. You've increased the value of their asset. Well, accounting 101, something has to happen on the liability side. If the asset goes up, either the liability or the capital goes up. Well, the answer is the Treasury has an account at the Fed. It's called the Treasury General Account. It's no different. You and I have bank accounts and we, you know, put money in our bank accounts. Well, the Treasury has a bank account at the Fed, this Treasury General account. So, when the Fed revalues the gold, the uh Fed would also have to credit the Treasury's account. All that money, that marktomarket profit, would go into the Treasury's account. At today's prices, it's about $1 trillion. Uh that's that's the amount of money that would just appear out of nowhere. But of course that's what the Fed does.
Um now it's when it was used before when there's been some talk about using it again. It's when the US hits these debt ceilings. Now separate law puts a cap on the amount of Treasury securities that the Treasury can issue. You can issue up to this level but no more. Well, Congress always raises it and they just keep increasing the debt level. But every now and then Congress wants to fight about it. uh and they they uh they don't raise the debt ceiling and the Treasury hits it and you can't issue any more debt and then the theory is well now the Treasury can't pay their bills uh you know because they can't issue any more debt. Technically true there's some workarounds but that's that's basically uh basically what happens.
Well, without raising the debt ceiling, without issuing any more debt, if you did this accounting entry I just described, um, a trillion dollars would appear out of nowhere in the Treasury's account. And they could spend a trillion dollars that would actually fund the government for, I don't know, four or five months at the current rate of expenditure without issuing new debt. And that's the point. And that's what happened in the Eisenhower administration in the 1950s. It was a little less dramatic. the Congress actually went home and the Treasury Secretary forgot forgot to get the debt increase before they went home. It was kind of an oversight, but they did exactly what we're talking about. They um the Treasury called the Fed and said, "Increase our gold account and put the money in and we'll spend it till the Congress gets back."
So, the answer is it's completely legal. It's not difficult to do. It has been done before and money would come out of thin air and be available to the Treasury. And if you did to the current market price, it would be about a trillion dollars. But here's the point. I think this is important for the viewers. That doesn't do anything to the price of gold. Gold is a world commodity. It's trading on traded on world markets. You have Shanghai, you have Comx, you have um the London uh uh Metals Exchange, London Billion Market Association, ETFs. Um gold is five, you know, roughly $5,100 an ounce. It's been bouncing around a little bit, but you know, let's just say over $5,000 an ounce. That's the price of gold. having the Treasury and the Fed make some accounting entries would not change that price. It would still be about $5,000.
So again, we're back to the psychology, and I think you this is what you were referring to, Michelle. If the Treasury did that, if the Treasury and the Fed did what we've just been talking about, would it change the psychology? Would everyday Americans go, "Oh, wait a second. You know, the price of gold just went up, you know, hundred times." Um, it might. Again, it's an accounting entry. It doesn't change the world market. It doesn't change the supply and demand. It doesn't change anything fundamental. But could there be a psychological spark that would say, "Hey, wait a second. The US government all of a sudden is paying attention to gold." The US government is treating gold as a monetary asset. I've told the Treasury for years, you know, you ought to buy gold. Your Treasury is issuing all these all this debt and they're uh you know, spending the money on on who knows what a lot of waste obviously. Why doesn't the Treasury just issue debt buy gold and you get to keep the gold?
So, um I think that uh again legally it's possible. Politically it could it wouldn't surprise me to see the Trump administration do it. Um it's it's just an accounting entry. It would put a lot of money in the Treasury's bank account. Those are all important things. By itself, it doesn't change the fundamentals in the world price of gold, but it could have a psychological effect.
>> Oh, well, I want to unpack a couple of things there. Firstly, would they have to market to current market prices or could you value it higher?
>> Well, higher is interesting. You could definitely value it lower. You could value it a,000 or 2,000 or anywhere in between. Um, could you value it higher? The accountants might object. The thing is, if you market to market, what you can't object say, hey, that is the price of gold. Now, you could do it multiple times. And this kind of gets to your point. If you did it, let's just say $5,000 an ounce today and then a year from now gold is $10,000 an ounce, which is what we've been talking about, what I've been projecting, could you do it again for another $5,000? The answer to that is yes. So, um, so there's not necessarily a cap, but it's not clear that I I'm not sure the accountants would let the Fed market above the market, but if you say, could you do it two or three times and follow the market, the answer is yes.
>> Okay. Okay. So, you market a market that sends a signal to Americans. Um maybe not a positive signal. Maybe it's a signal that uh there's a reason that this is happening. And keeping in mind that an increase of a trillion dollars is basically just a year's interest uh of the debt that's already owed given now we have $39 trillion in debt. But what what signal does this send to other countries if this were to happen? Particularly countries like China, which we know have been accumulating gold at record levels and have probably been accumulating a lot more gold than they say officially. If this were to happen, and you're saying that it would not surprise you if the Trump administration does that, you know, let let me put you on the spot here, but what would be the percentage chance that you would give to this happening under this Trump administration?
>> Oh, um, probably o over 50%. I don't, you know, not 90, but you know, 60 65%. Yeah, I mean they're they're taking it seriously. Scott Besson, our treasury secretary, is uh um you know, the very seasoned hedge fund trader, used to work for George Soros and other other hedge funds. Um I I'm pretty sure Jay Pal would not do it, but Kevin Worsh might. Kevin Worsh seems more of a pragmatist. I'm not saying he would be banging the table, but he would certainly go along with it. He wouldn't really have much choice but to go along with it because uh the Treasury does own the gold. the Treasury does have that account uh and they and it's been done before and it was at the initiative of the Treasury. So I think if the Treasury made that phone call, the Fed would have no choice but to go along. Uh and yeah, I would say well over 50%.
>> Well over 50% that the US revalues its gold to market under the Trump administration. What signal does that send to the rest of the world? What do you expect from China under that uh scenario which we know has been accumulating gold and has recently made its intentions known that it wants the yuan to become a global reserve currency. What would you expect then?
>> But well, first of all, and you alluded to this, Michelle, it's important to understand most of the world already does this. I mean, we're the United States is the only one saying gold is $42 an ounce. As I say, it's it's an old it's historic cost accounting if you want to be technical. But um most countries uh when they buy new gold they put it in their reserves at the either the price they paid or they market to market or they do both. So this is not a shocker to the rest of the world because it's what they already do. It's it's sort of uh common sense. So in a sense the US would just be catching up but but of course the US is the largest single holder of gold.
If you ask me what the what the effect is uh kind of psychologically, you know, in terms of the popular media, again, it's just an accounting entry. It does put money in the Treasury's account, but what it does, it sends a signal to the American people and to the world that the US cares about gold. Um and you know years ago Ben Bernaki was asked in an interview um you know about gold and you know what uh why you know what if gold's unimportant why does the US have 8,000 plus metric tons and his answer was uh he said it's a tradition. He he dismissed it. Now Bernaki is smarter than that. He knows there's a lot more to it of course but he was sort of like blowing off the question. Now it's just a tradition just sitting around and a lot of uh public officials have more or less said the same thing. There very few people who uh take gold seriously as a monetary asset in the United States even though the rest of the world does and that's increasing as the US has um weaponized the dollar.
I teach financial warfare at the US Army War College and we talk about all this this we talk about this all the time how you can use financial systems, payment rails and uh other techniques uh to fight wars uh and kicking Russia out of Swift which he referred to freezing the Russian assets uh which are in Belgium by the way they're at a custodian called Euroclear in Belgium uh over $200 billion worth of treasury securities. Uh they uh most of this is mature by the way so it's actually sitting uh sitting in cash at this stage. Uh but once you freeze that and the US and Europe have been thinking of stealing it. We we freeze stuff all the time. That's one thing. It just means you can't get it but it's still yours. Stealing it is different and that is what they're they're talking about.
But the rest of the world, you know, China, Saudi Arabia, Taiwan, Japan, India, they're watching this. They're like, "Hey, what if the United States what if I do something the United States doesn't like? What if the United States doesn't like what I'm doing? Are they going to freeze my Treasury securities? Well, five, six years ago, that might have been unthinkable, but we actually did it in the case of Russia. So, the answer is we might. And if you were that central bank or that um finance ministry, you're probably looking at buying more gold because if you have physical gold in your possession, the US can't touch it unless they invade or something extreme like that. So, that's one of the reasons they're buying gold is because the US can't freeze it. and that that is going to accelerate.
So, um so now we're we're getting into a world, Michelle, where gold is all of a sudden being taken seriously as a monetary asset. You know, I I uh I have a graduate degree in international economics and I got I received it in 1974. 1974 I was the last class where gold was still taught as a monetary asset. You know, people know Nixon closed the gold window in 1971, but he said it was temporary. He said, "We're temporarily temporarily suspending the redemption of US dollars for gold." They thought they would get back to a gold standard. And they tried at the Washington, the Smithsonian accord in uh December 1971. I talked to two of the people who were at Camp David on August 15th, 1971 when Nixon closed the gold window. I spoke to Paul Bulker and Ken Dam, who was the lawyer, and they told me, they said, "Yeah, we thought we were going to get back to a gold standard, but they never did." But it really took until 1974 until the IMF demonetized gold and no longer required gold deposits to join the IMF and all that. But I studied gold as a monetary asset. Since then, um we have three generations of scholar scholars. If you know anything about gold today, you're either self-taught or you went to mining college because they don't teach it academically. Um but all of a sudden, I think this thing of revaluing it by the US is a big deal. Even though I've said it's just an accounting entry, it's a big deal psychologically because it says, "Hey, wait a second. The US actually cares about gold. Maybe we should get some, too.