U.S. gold reserve an open secret

The U.S. gold reserve is one of Washington’s “open secrets.” The Treasury’s open attitude about the status of the reserve can be attributed to three factors:

* The U.S. gold reserve is owned and managed by the Treasury Department; * Treasury policies and actions are regularly reviewed by Congress; and * The Treasury is sensitive to the public’s interest and faith in the reserves.

The following are significant developments that have occurred with the U.S. gold reserves since the lifting of the ban on private gold ownership in 1974. In 1978, the federal administration held 19 auctions and sold 15.8 million oz. gold in an effort to support the U.S. dollar.

In 1981, when hostages were released from Tehran, Iran, part of the agreement included a payment by the U.S. Government to Iran in the amount of 1.6 million oz. gold. This proves that gold can be a nation’s currency of last resort.

In 1982, U.S. Treasury Secretary Donald Regan chaired a blue-ribbon committee, the Gold Commission, charged with studying the role of gold in the U.S. In its report, the committee was opposed to re-establishing a tie between gold and the U.S. dollar; it also opposed disposing of the gold reserves.

In 1983, some Republican members of Congress suggested selling some of the IMF gold to pay for an IMF quota increase, but Secretary Regan opposed this, arguing that gold auctions would place upward pressure on interest rates and cause instability in financial markets.

In 1985, American Eagle gold bullion coins were issued for the first time. The Treasury did not wish to use the gold reserve as the source of the metal. Thus, the U.S. Treasury made regular gold purchases to provide gold for the coin program.

In 1985, Representative Dan Rostenkowski, Chairman of the House Ways and Means Committee, suggested selling the gold reserve. The Treasury said the President would not authorize such a move because that would undercut confidence here and abroad.

In 1986, during the hearings on South African sanctions, anti-apartheid forces proposed an amendment requiring the U.S. Government to sell its gold reserves. The objective was to drive down world gold prices to hurt South African foreign exchange earnings. The Treasury and the U.S. gold industry lobbied successfully against the amendment in both 1986 and 1988. In 1988, a senior Treasury official argued against the selling of U.S. gold on several grounds, including that it would devalue the gold reserves of allies and harm domestic gold producers.

— This is a summary of a presentation given at the Central Bank Workshop, held Jan 20 in New York and sponsored by the World Gold Council. Michael Brown is vice-president of public affairs for The Gold Institute of Washington, D.C.