The Great American Disaster: How Much Gold Remains In Fort Knox?

A Huge Mystery Remains To Be Solved

Yesterday marked 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.

Before that 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.

Since then, 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?

After cutting 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.

Only foreigners 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 seen.

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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.

Nothing since 1988 has happened to change my views.

The Story 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.)

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When President 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 liar.

However, within 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.

Saxbe moved 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.

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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.

Of course, 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."

Sadly, the 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 dollar.

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.

The One “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.

The central problem was that it wasn’t much of an audit. To sum it up:

  1. Representatives of the audited group were allowed to make the rules governing the audit. No outside private experts were allowed.
  2. Those government bureaucrats involved were inexperienced in their tasks, by their own admission.
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  4. Only a fraction of the gold was actually tested. Later, the officials put this fraction at just 5%.
  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.
  6. 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 ounce.

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.

Even after 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 believes possible.

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.

10 year gold price per ounce 10 year gold price history in US Dollars per ounce

We’re straying a bit from the main subject.

The central 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.

“Good delivery” 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."

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The shocking admission Ft Knox holds very little good delivery gold was made to Mr. Durell by the chief official of the General Accounting Office (GAO).

This happened 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 were assayed.

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.

This should 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 1971.

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.

The results 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 bamboozled.

By February 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.

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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.

Krieger confirmed this in a letter to Durell of April 11, 1975:

“We analyzed, 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.

What happened 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 were.

And Reagan? 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 acknowledged experts.

Instead, the 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.

Occasionally, 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.

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After decades 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 again.

The government 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.

China Moves 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.

However, until 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.

The price 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 last month.

Since then, 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 few weeks.

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: very small.

The action 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.

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An Editorial

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.

That’s how 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.

Indeed, there 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 by Afghanistan.

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.