Are Gold Vault Audits Already Under Way?

There was talk about auditing Fort Knox to see if the gold it claims to have is still there. (1)(2)(3). This type of audit was not carried out recently, and the question of the vault’s contents has not been totally addressed. But what if an audit was in fact going on, piece by piece? The first question to ask is: To whom does the gold in Fort Knox belong? Given the tonnage that is said to be there, most of it would belong to the richest holders of gold – central banks and institutions. Although this gold was obtained from U.S. citizens in 1933, most of the claims on gold are by central banks, gold trusts and other large market players on their behalf. (1)(13) Private gold tends to be purchased through gold certificates or gold funds, which are also stored in international vaults similar to Fort Knox. (6) What applies to Fort Knox would apply to any international gold vault, since many countries store gold in multiple vaults around the world.

There is a limited amount of central banks in existence. Many of them are discussing buying more gold, or repatriating their gold. (7)(8)(9)(10)(11)(12). The largest holders of gold are the American and European central banks. So if more of them are trying to find out where their gold is, one way or the other it will get discovered where the gold is or is not.

A second factor to consider is that many developing countries are buying more gold – notably China, India and Russia. (13) Since this gold is physical and they are buying a lot of it, it has to come from somewhere. Since supplies of gold are tight, there are few sources that could physically deliver large quantities of gold. Doing the mathematics, each vault will eventually have to deliver gold to someone if the current demand continues and nobody else has the gold on hand that can be delivered. The assumption here is that physical gold must be delivered and not delayed with futures contracts, pending promises, or cash claims in lieu of gold. Should this assumption be proven wrong for a long period of time, the effects of this “audit” will essentially be delayed until they are no longer relevant. There seems to be growing distrust over gold storage and record keeping, which is why countries are demanding to see what they are told they have. Distrust has a way of growing rather than dissipating unless proof is provided. Rather than a gold audit being performed by counting what is on hand at a given institution, the audit may be performed by many large depositors cashing in their holdings – essentially a run on the gold vaults. If runs have ruined banks in the past, it may be the same fate that awaits any gold storage facility that cannot deliver on its promises.



About joetheinvestor
Joe Barbieri has Bachelors degrees in both Civil Engineering and Commerce from the University of Toronto. He has worked in the Financial Services field for over 12 years, covering positions from Retail Customer Service and Fund Accounting, through to Investment Research on the Institutional side. He has worked in 5 companies, spanning banks, a mutual fund, a Consulting Firm and a Large Canadian Pension Plan. He currently has a Chartered Financial Analyst designation (CFA) from the CFA Institute. He has recently published articles in Pension and Benefits Monitor Magazine as well as the Internet.

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