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How Much Gold Is Really in Fort Knox, and How Would the Answer Affect Gold Prices?

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A look at the credibility of the US bullion depositary and the possible price of gold.

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In the classic 1964 movie Goldfinger, James Bond tries to prevent the main villain, Auric Goldfinger, from detonating a dirty nuclear bomb inside Fort Knox. While in Fort Knox, Bond says, "Well, if you explode it [the bomb] in Fort Knox, the... the entire gold supply of the United States would be radioactive for... fifty-seven years."

Goldfinger is only a work of fiction. Fort Knox wasn't under the threat of a nuclear explosion (then again, who knows?). Nonetheless, it has been argued that it wouldn't really make difference if the gold in the fort were radioactive – nobody has seen much of it since the 1950s. On December 4 and December 12, 2012 in our two-part story on gold and the US dollar, we highlighted two possibilities: the dollar collapses, gold goes up like crazy or the dollar doesn't collapse, gold still appreciates. In those commentaries, we analyzed the possibilities of gold appreciating and tied possible price levels with a number of factors -- for instance, with US gold reserves as presented on the chart below.



On December 4, 2012, we wrote the following:
This chart presents the … relation of US debt to Treasury gold reserves – the amount of debt per one ounce of gold – up to 2012. The red line represents US Treasury gold reserves in metric tonnes, while the yellow line denotes the amount of US debt in dollars per ounce of gold. The debt per ounce has visibly increased since 1971, accelerating around 2000 and even more around 2008. In 2012, there were $61,796.11 of debt per one ounce of gold owned by the US government.

Now, if a new gold standard is introduced and the agreement works like the Bretton Woods system, the dollar (or whatever other currency) would be tied to gold. As noted earlier in this essay, at the introduction of the Bretton Woods agreement in 1944 the debt coverage for the US stood at 10.9% (or $319.90 of debt per one troy ounce of gold). If the new system were based on similar assumptions with debt coverage at 10%, this would imply a fixed price of $6,179.61 per ounce of gold ($6,179.61 per ounce of gold divided by $61,796.11 of debt per one ounce of gold gives us coverage of 10%).

Since the publication of this essay, we have received a particularly interesting question about the assumptions we used:

Dear Mr. Radomski,

Your December 4, 2012 article … is exceeding well-written and researched, and I gained a lot of knowledge from reading it. However there is one potential problem I see in all the logic you are applying to the current situation. It seems to me you are assuming the USA actually has gold at Fort Knox and West Point. But there is mounting, but unproven evidence, both places have no gold in them at all, and are rather storage places for nerve gas.… An audit of the US gold holdings has been demanded by some for years, but the government will not allow it. The gold belongs to the American people, so why won't they let us see it? Many think it is because it is no longer there. If that is indeed the case, do we not face a "financial Armageddon?" Thanks for reading this and any response you might have. (I am not a conspiracy freak!) …

We always appreciate our readers' feedback and would like to thank for it here. We also appreciate spot-on questions and see this particular one as intriguing, to say the least. Which brings us back to Fort Knox.
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No positions in stocks mentioned.
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