By James Rickards
U.S. News and World Report
Monday, June 4, 2012

http://www.usnews.com/opinion/blogs/economic-intelligence/2012/06/04/cal...

For those who comment on the role of gold in the international monetary system, one of the most frequently asked questions involves the existence of the U.S. gold hoard. Officially the U.S. Treasury is in possession of 8,133 metric tons of gold stored mostly in two large depositories -- Fort Knox, Ky., and West Point, N.Y. -- with smaller amounts on deposit at the Denver Mint and the Federal Reserve Bank of New York.

Yet, as a writer and speaker on the role of gold, the most frequent question I encounter is, "How do you know the gold is actually there?" or some variant. The suggestion is always that the United States long ago dumped its gold on world markets to suppress the price and that the vaults in Fort Knox are actually empty or, at most, filled with tungsten bars lightly coated with gold paint.

Invariably these critics point to the fact that the Treasury will not permit an audit of the gold as proof of their suspicion. A proper audit would verify both the quantity and purity of the U.S. gold hoard. Ideally, each gold ingot would be individually numbered and tested and at the end a reputable nongovernment auditor such as a major accounting firm would attest a complete inventory of separately numbered ingots. This should be a fairly straightforward task. The failure to conduct the audit is perennially advanced as evidence that the gold does not exist.

Analysis should always be based on the best available evidence and not speculation. I have seen some evidence, gathered from military and Treasury officials, that the gold is where the government says it is. I have seen no evidence whatsoever that it is not. Based on this, I assume the gold is there. If I learn differently someday, I'll change my view, but until then I'll base my economic and monetary analyses on the fact that the United States is the proud owner of 8,133 metric tons.

But what about the audit? What harm can there be in that if the gold is where the Treasury says it is?

There are two powerful reasons not to do the audit even if the gold is in the vaults.

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James Rickards is a hedge fund manager in New York City and the author of “Currency Wars: The Making of the Next Global Crisis” from Portfolio/Penguin.