*This article is focused on US and the gold standard. In-a-way very relevant for all markets. Currently there is a lot of talk on change of fisical standards, Crypto or Gold standards or ??
A quick take on this below…
The U.S. Treasury owns approximately 261.5 million ounces of gold, and it is still valued on the books at the official price, which was $42.22 per ounce at the point when the U.S. fully dropped the gold standard in 1971. It has never been updated since then, probably mostly because the price stopped meaning anything — before 1933, anyone could redeem their paper money for gold at the official price, which was $20.67, and when gold was seized from U.S. citizens and the redemption option ended, FDR reset the gold price to $35 in 1934, creating a one-time windfall to help cover the costs of the Great Depression (because it was backed by gold, the only way to get some inflation to give them room to boost spending was by resetting the price of gold)… but after that, US remained technically on the gold standard until 1971, because the U.S., under the Bretton Woods agreement after World War II that reset and fixed global exchange rates, guaranteed to redeem U.S. dollars held by foreign central banks for gold, which is what held the Bretton Woods system of currency controls in place. When the U.S. government under President Nixon effectively ran out of money to cover the Vietnam War, Nixon “closed the gold window” and stopped offering redemption of dollars for gold to even those foreign central banks, so I believe $42.22 was the last price as which redemption was available in 1971. That number, the official U.S. government gold price, has since been irrelevant, so it hasn’t been updated.
What would happen if it were to be updated? Well, the current official value of the Treasury’s gold is $11.04 billion (261.5 million ounces at $42.22 per ounce). If they reset the value to the current market price, using $4,000 an ounce for the sake of argument, since that’s roughly the current market price, then all the gold owned by the U.S. government would be worth roughly $1.05 trillion. That would create a one-time “paper profit” of about a trillion dollars. The U.S. government currently spends roughly $1.8 trillion more than it brings in each year, so that would “cure” the budget deficit for about 6-1/2 months.
That would be at least reasonably justifiable, and is no less insane than a lot of other government accounting, so it could be a political boon, it would let politicians claim they had cut the deficit, maybe long enough to impress voters at election time. It would not have any impact at all on the accumulated government debt. The impact would wash away almost instantly.
And while the U.S. government is the largest owner of gold in the world, it doesn’t get to decide what anyone else should pay for gold on the open market. So we should acknowledge that “resetting” the gold price to the market price is reasonably sensible.
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