A Huge Mystery
Remains To Be Solved
the 39th anniversary of the day when the US Government declared
bankruptcy. Oh, they didn’t call it that at the time. But what happened
on August 15, 1971 was that the US defaulted on its promise to pay
gold for dollars.
day, gold was the legal linchpin of the world monetary system. Although
every currency was defined in terms of the US dollar, the dollar
itself was legally defined as 1/35th of a troy ounce of gold.
there really has been no center to the international monetary system.
The “reserve currency” continues to be the US dollar. But there
is no official definition of what a dollar is. Like every other
currency, its value changes every ten seconds as it is traded on
the global currency markets. It is a promise to pay nothing. Its
value has been devalued for years. On top of that, enormous effort
has since been put into the global currency markets: buying, selling,
manipulating…none of which has caused anything productive to the
world economy. Oh, sure, currency investing has made some of us
rich, but is it really the same kind of wealth that, say, Steve
Jobs has created with Apple?
that last tie to gold, there was no longer any discipline left to
keep the value of the dollar steady. The US dollar of August, 1971
is as of 2009 worth just over 18 cents, according to the Inflation
Calculator. Thus, in purchasing power, the dollar has lost over
80% in the past 39 years.
were legally able to turn in their US dollars and get gold from
the US Government from 1934 to 1971. August 15 of that year closed
off that last power of convertibility.
In 1934, gold
was confiscated from US citizens, melted from coins into bars, and
gathered over the next few years into a new storage facility at
Ft Knox, Kentucky. After that, the official price of gold was raised
from $20.67 to $35, a devaluation of the currency that was an attempt
to inflate the economy out of depression. It didn’t work, but what
it did do was to attract more gold in one place than had ever been
At a time when
deflation was depressing prices for all assets, the drastic rise
in the official gold price made people all over the world want to
sell their gold to the US Treasury. For many years, $35 an ounce
was higher than the market price, so foreign sellers got a bargain.
The peak amount
of gold held in Fort Knox reached 701 million ounces of gold. This
was in 1949. This amount equaled 69.9% of all the gold in the world;
never before had so much gold been gathered in one place.
But soon after
that, gold began to leave Ft Knox and was shipped to the foreign
persons and institutions who ponied up their $35 in Federal Reserve
Notes for each troy ounce of gold they wanted. At some point in
the 1950s, $35 became too cheap a price for gold.
From then until
1972, at least 75% of official US gold left the nation in exchange
for paper dollars which can be printed at will. However, I think
the total amount of real gold which remains is even less. The exact
amount that remains is now officially listed at 147.3 million ounces.
From the peak, that is a decline of 79%.
In 1988, 22
years ago, I wrote a book about Fort Knox, the gold there, and the
documented history of official lies, evasions and incompetence of
those who were entrusted with the gold.
I say “documented
history” because when writing the book, I was very careful to only
include official documents and private correspondence from the US
government, stretching from 1934 to 1987. Using their own responses
to the questions of just how much gold is left, and what that gold’s
quality is, for the first time this book put all these governmental
attempts to answer the questions about their own gold policies in
one place. What their responses revealed was shocking to me.
1988 has happened to change my views.
Of A Great Man
How I came
to write this book is an interesting story. I was in the right place
at the right time. A man named Edward Durell had been corresponding
with the highest US governmental officials for years when he asked
me to come to his Virginia farm and write a book based on all his
work. He was nearly 90 years old, and had been a wealthy industrialist
who had bankrolled the campaigns of many politicians for decades.
He was dying (he would die weeks after the book came out) and wanted
to see all his concerns made public before he did. It was his life’s
work to restore transparency and honesty to the monetary system.
(He had learned about me from Congressman Ron Paul. Five years before,
in 1982, I had ghostwritten half of Paul’s book, The
Case For Gold.)
Nixon closed the gold window exactly 39 years ago, Durell began
hearing rumors that made him concerned about the amount and quality
of the gold that remained in Fort Knox. While Durell was a lifelong
Republican, he never trusted Nixon, and considered him a world-class
days of Nixon’s resignation in August of 1974, Durell contacted
his old friend (and longtime recipient of Durell’s money for his
various past elected offices) William Saxbe. Saxbe wasn’t just anybody:
he was then the United States Attorney General, the highest legal
official of the executive branch of the government. With a new President,
Gerald Ford, who Durell considered more honest, he asked Saxbe to
mount a complete audit of the gold at Ft Knox.
quickly to try to placate Durell, and barely six weeks later, on
September 23, 1974 Mary Brooks, the Director of the US Mint, led
six Congressmen and one Senator on a tour of Ft Knox. It was the
first time since Franklin Roosevelt visited on April 28, 1943 that
anyone except Mint and Treasury officials had been allowed inside
of Ft Knox. Too my knowledge, no outsider has been inside ever since.
It was not
an audit or inventory of the gold supply; but simply a tour. But
there was more of a carnival atmosphere than anything else. While
it seemed to placate the few elected representatives at the time,
upon reflection several of them publicly pronounced themselves unsatisfied.
I tell the
story of this, and more, in the book. I don’t want to repeat it
here. I’m trying to get the book put online, and by the time we
go to print with this issue, I may be able to do this. Until then,
there are copies of the book available at Amazon.com.
It is called ‘…Good
As Gold?': How We Lost Our Gold Reserves and Destroyed The Dollar.
(I wrote it as Christopher Weber.)
The book was
not a success. In fact, no other book I ever wrote made so little
an impact. It came out to a world which didn’t care about the subject.
It was not a “sensationalist” book, in the sense that we were not
screaming that there was no gold left in Ft Knox. That approach
would have gotten more press. Instead, the tack we took was to let
the official government responses speak for themselves, while pointing
out their poor quality and very unsatisfactory nature. We didn’t
want to put out any allegation that would not stand up in a court
of law: that’s how carefully the book was written. I’ve sometimes
thought that the massive indifference which greeted the book hastened
Mr. Durell’s death, and I’ve felt bad about that ever since. Durell
was a great man who deserved better.
Part of the
failure was my own fault. I did very little to promote the book.
This is because I am not a good promoter of anything; I don’t like
to be the center of attention and have always tried to avoid fame
and the spotlight. While I’m happy to say that I’ve been successful
in the avoidance of fame, in this case, I was the wrong person.
With Durell dying, the burden of any promotion of the book fell
to me, and I let him down.
Maybe a great
promoter could have gotten the public interested in the story of
how America lost its gold, but by 1988, the bull market in gold
had become a distant memory, so maybe nothing would have worked.
the book didn’t have the best title; I’ve forgotten who came up
with it (probably me). The “Good As Gold?” part was based on a speech
given by President Kennedy days after he took office in January,
1961. As he put it, “the growth in foreign dollar holdings has placed
upon the United States a special responsibility – that of maintaining
the dollar as the principal reserve currency of the free world.
This required that the dollar be considered by many countries to
be as good as gold. It is our responsibility to sustain this confidence."
policies of JFK were just like those of every president from FDR
to Obama. They all have treated the value of the dollar as something
to be sacrificed in favor of other goals. The only reason why the
US dollar is still the reserve currency of the world is that no
other nation is in a position to have a currency to challenge the
What has happened
instead is that the dollar is no longer “as good as gold," and that
every currency has fallen in value in terms of gold.
“Audit” Of Fort Knox
The only audit
that has ever been done of the gold inside Ft Knox was done days
after Dwight Eisenhower became President in January of 1953. After
20 years of Democratic presidents, the American public wanted to
be sure that the gold confiscated from them was still there. Thus,
the new President ordered an audit within hours after taking office.
problem was that it wasn’t much of an audit. To sum it up:
of the audited group were allowed to make the rules governing
the audit. No outside private experts were allowed.
- Those government
bureaucrats involved were inexperienced in their tasks, by their
- The entire
audit of the largest gold hoard ever concentrated in history lasted
only seven days.
- Only a
fraction of the gold was actually tested. Later, the officials
put this fraction at just 5%.
- Based on
that fraction, the official committee reported that, in their
opinion, all the holdings would have matched their records if
they’d all been tested.
- If the
audit was accurate, the fact remains that almost 80% of it went
overseas in the coming years. If the audit was not accurate, the
amount of gold lost could have been even more.
This one and
only audit reassured the America of 1953. But that America was still
used to accepting official government statements at face value.
In later years, after all the lies connected with Vietnam, Watergate,
and so many things ever since, Americans today have lost much of
their respect and belief in the words of their government. (In fact,
few today even view it as “their” government.) An audit such as
the one of 1953 would today satisfy almost nobody.
The years after
1953 saw hundreds of millions of ounces of gold fly out of the US.
It is absolutely certain that wealthy Americans, operating behind
foreign institutions, were able to accumulate gold at what are clearly
now bargain prices. But more important, America’s enemies were able
to do the same: exchanging the paper dollars for gold at $35 an
In the book,
I tell the sad story of how Washington tried to suppress the price
of gold during the 1960s with the London Gold Pool. Both the official
and private responses regarding this are included.
It is clear
to me that the last bull market for gold lasted 20 years, from 1960
to 1980. However, the price of gold only rose during the 1970s.
This is because the price was manipulated – suppressed –
all during the 1960s. When the manipulation stopped, the price soared
far and fast to make up for the time it had been held down artificially.
From $35 in 1971 to $850 at the January 1980 peak, that’s a rise
of 2,329% at a time when every other asset class was either doing
nothing or plunging.
After a period
of moderation in inflation which began in 1980, gold went into a
bear market. However, it reached a low of $256, much higher than
the old low of $35. When the price began to rise in 2001, it hasn’t
stopped. However, this has been a stealth rise, a bull market that
has been ignored by most people.
10 consecutive years of annual rise, very few people own it or are
excited about it.
I think there
is still much, much more room for gold to rise. This bull market
will take the price to a level much higher than most anyone today
There are people
who today think gold’s price is being manipulated and held down.
If they studied the history of the London Gold Pool, they’d have
to realize that any supposed suppression going on today is child’s
play compared to what went on as official policy in the 1960s. If
gold’s price action since 2000 has been suppressed, I say bring
on more of it! It’s making gold holders wealthy.
a bit from the main subject.
part of what I learned is that, by official admission, only a small
percent of the gold that is left in Fort Knox is “good delivery”
gold. In fact, though this is just my opinion, I wonder if there
was so little such good delivery gold left by August of 1971 that
Nixon had to close the gold window.
gold is gold that is at least .995% pure. Pure gold is .9999 fine.
However, gold is allowed to be .995 fine and still be acceptable
to buyers, such as central banks and sophisticated investors. All
of the gold that had left Ft Knox before the window closed 39 years
ago today was “good delivery."
admission Ft Knox holds very little good delivery gold was made
to Mr. Durell by the chief official of the General Accounting Office
a few months after the September 1974 tour. During that event, which
lasted less than four hours, the visitors were shown only what the
Treasury officials conducting the tour intended these elected (non-expert)
representatives to see. Only one of the 13 compartments supposed
to contain gold was actually opened to the visitors. As the cameras
flashed, a few bars were weighed by the Congressmen. None of them
But even worse
than this was the fact that these eyewitnesses were shown bars that
were strangely orangish in hue. This is a sign that they are far
from pure gold.
come as little surprise, however. Remember that the gold confiscated
from Americans had usually come in the form of gold coins. Pure
gold coins are considered too soft and copper is usually added to
strengthen them. US coins before 1933 contained about 10% copper
and 90% gold. Thus, the bars made from melting them often contained
the same proportion. Some of the new bars had the copper removed:
these were good delivery bars that went out the gold window before
But much of
what was left, as seen in the one compartment opened in Ft Knox,
were quite obviously of bad quality. They were the dregs of what
had been the greatest accumulation of gold that had ever been seen.
At the same
time, the Treasury agreed to audit the gold. However, they only
agreed to audit 20% of the gold. This was supposedly done over a
30-day period that began the day after the tour.
of this “audit” were released in February of 1975. Mr. Durell was
less than impressed with the whole thing: it was certainly not what
he had wanted when he brought up the subject with Attorney General
Saxbe the previous August. He felt, with justification, that he
(along with everyone else) had been
1975 Saxbe was Ambassador to India, so Durell communicated his displeasure
through his local Virginia congressman.
As a result
of this, the GAO sent four men to Durell’s Virginia farm to try
to convince him of the validity of their accounting practices. In
charge was Hyman Krieger, the GAO’s Washington regional manager.
The one concrete
piece of information to emerge from this meeting was a bombshell.
Krieger admitted that only a small part – 24.4 million ounces
– of the official gold was of a quality of .995 or better.
In other words, less than 10% of the 264 million ounce held by
the Treasury could be considered good delivery gold.
this in a letter to Durell of April 11, 1975:
as agreed, the gold bar schedules for Fort Knox and found that
fine gold in good delivery form (.995 or better) at Fort Knox
totaled 24,411,140 ounces.”
This from the
701 million ounces that were the supposed peak. In fact, in the
absence of a true and independent audit and assay, we really can’t
be sure of how much is actually there. First the Treasury said that
264 million ounces of gold was there by the end of 1972, but later
on the number was changed to 147.3 million ounces, and that’s the
number it stands at today.
to change the 264 million to just 147? How much – exactly –
remains in Fort Knox? Of that, how much – exactly – is
good delivery quality? What is the quality of the rest?
After an unsatisfactory
1976 attempt by the US Treasury to answer its critics, the curtain
came down. The next President, Jimmy Carter, was even worse. His
people were even less interested in candor than the Ford officials
Although he made nice noises about a return to a gold standard,
his officials met any attempt at an honest and transparent look
inside Fort Knox with slippery evasions that contained more than
a hint of ridicule and mockery.
I don’t have
the space to detail all these here, but they are in the book. It
is all a most dispiriting story.
If the US Treasury
was really interested in erasing all the questions, they could have
done so at any time by allowing a truly independent audit, with
history of their responses over the decades gives the impression
that they have something to hide. They have done their part to cause
the average American to distrust their government, regardless of
which political party is in power.
news leaks out that makes one wonder how bad things really are.
The New York Assay Office had been the only part of the Treasury
that had melted and refined gold starting with the 1934 confiscations.
A few years ago, it was announced – in connection with another
story – that over 5,000 ounces of gold had been stolen from
this office. According to the Treasury official in charge, “The
full truth [amount] may never be known because the records are so
poor.” Two Treasury employees were ultimately charged with theft
in this one case, but who knows how many other episodes have happened?
No one is watching. Everyone knows that for every government scandal
that is revealed, many more are covered up. Some are done by design,
some by just plain incompetence.
of mismanagement, it is clear that nearly all of the good-quality
gold in Fort Knox is gone. If a real audit were ever done and made
public, it would shock the nation.
In an era where
the world is finally rediscovering the value of gold, the only ways
the US will ever get back anymore official gold will be either to
buy it in the open market or to confiscate it from its citizenry
may indeed try to confiscate gold from Americans again: I can’t
put anything past them. But the Americans of today’s world are not
like those of 1933. They are suspicious of their government, and
would act more like Europeans have always done: they’d hide their
gold from the government. The only way the 1933 confiscation worked
was by voluntary participation. Americans considered their turning
in of gold as a patriotic act. This would not be the case today.
It is much
more likely that America will continue to denigrate gold, just as
it has for decades. Most officials; indeed, virtually all officials,
don’t respect gold at all. In that, American officials are much
like American investors. Future historians will be amazed at just
how fast America declined starting in the late 20th century. As
has happened so often in the past (although much more slowly) no
great nation ever went off the gold standard and remained great.
To Increase Domestic Gold Demand
This is so
very different from the actions of the Chinese. Slowly but surely
over the last few years they have been turning toward gold. First
the Chinese central bank has bought all of the production of the
gold mined in China. It has so encouraged mining that the nation
has become the largest producer of gold on the globe.
now, the decades-old policies of dictating to domestic commercial
banks have stood in the way of gold accumulation by both banks and
individual Chinese. This now is changing. On August 3, the government
issued new rules which allow at least some banks to import or export
gold for the first time in the history of post-1949 China.
It is a safe
bet that Chinese banks will not be exporting gold. In effect, they
are being given the green light to buy gold on global markets and
sell it to their customers, or just keep it themselves. Actual gold
trading in China has been rather thin, what with the government
taking up all of domestic production.
This new policy
seeks to widen the amount of gold available to Chinese.
The rules not
only cover domestic Chinese banks. Foreign banks in China are also
now free to import and sell gold to Chinese.
A few weeks
ago I titled an issue: “Has China Put A Floor Under Gold?” The idea
was that Chinese appetite for gold is now such that any price corrections
are very small and don’t last very long.
action of the past few days has shown that this is looking to be
the case. After gold soared to a record high $1,261 in June, it
backed off. This was only natural, after such a huge advance of
over 80% in about 18 months. I wouldn’t have been surprised to see
gold correct to lower than the low of $1,155 it briefly touched
gold has turned up again. It’s looking like the 6–7% correction
we saw is all we’re going to get. Moreover, it lasted just a very
Look at a
gold price chart over from the past several months and it is
becoming clear that the correction from the record high is like
nearly all the other corrections since this bull market started:
hasn’t given buyers who want a bargain time to get in.
When I say
“China” is putting a floor under gold, it is probably better to
say “Asia” in general. The Chinese in Hong Kong and Singapore as
well as the Indian communities in Asia are buying. Also, don’t forget
the Vietnamese. All over Asia people are snapping up gold without
waiting for a major correction. By so doing, they may be making
sure that a major correction doesn’t happen.
The best policy
is not to try to time your purchases. Just accumulate to the point
where you have enough, in percentage terms.
I suppose you
can sum up all this by stating some simple numbers. When Americans
gave up their gold back in 1933, they were paid $20.67 for each
ounce they surrendered. If they had simply lost one of those ounces
behind the sofa, today they could exchange it for over $1,200. But
if they had taken that $20.67 and misplaced it until today, that
amount of money would only buy what a mere $1.32 would have bought
them they day they turned in their gold.
well the dollar has held its purchasing power since 1933. And that’s
how well gold has held its.
If gold is
ever confiscated from Americans again, they’re going to have to
make a choice. If they know their history, they will know that the
last time the people’s gold was confiscated, the government treated
that gold poorly. Let it slide through it’s fingers, let it be bought
for much less than its true value and in exchange for it’s own pieces
of worthless paper. Who knows how much was simply stolen by government
employees acting on their own? But likely much more was lost in
foolish schemes like when in the 1950s the CIA parachuted millions
of dollars worth of gold bars into Poland to support what they thought
was a powerful underground movement against the Soviets. In fact,
the Soviets had wiped out that movement years before, turned its
key people into double agents and played the CIA for suckers. As
time passes, we are hearing more stories like this.
The only Americans
who ended up with American gold were the wealthy who were able to
buy it offshore. Thus, we saw a transfer of wealth from middle class
to wealthy long before people have recognized that trend today.
In short, the
US Government fouled up the entire episode in much the same way
that it has ruined nearly everything else it has touched.
is reason to think if Americans’ gold is ever confiscated again,
it won’t be by the central government, because that government will
have finally lost all legitimacy. Instead, we could see a pattern
of local strongmen or warlords that have afflicted other nations
in the past – even now-modern nations like Japan and in Europe
– and still is seen in places like Afghanistan. Some of those
warlords, like the “Northern warlords” of the Ahmed Shah Mossoud
organization, have been supported by the Americans; others have
been opposed. It would be the kind of tragic irony history loves
if local warlords are ever seen on American territory: instead of
the US conquering Afghanistan, in effect the US will have been conquered
I think we
are at the point that if honest money is ever to be seen, we will
have to see also a complete separation of money and state.
The State has
had its chance to control money: It has made a mess of it.