Will China buy the entire U.S. gold reserve?
It is plausible.
The possibility of gold sales was raised by Thomas G. Donlan in his Aug. 28 column in Barron’s.
I read it yesterday while on a flight to Chicago.
Donlan asked how the government could go on paying its bills in the event there is a shutdown in September.
Citizens not getting their Social Security checks would become angry.
Donlan did not speculate about potential buyers, so I will.
The United States has 261 million troy ounces of gold.
The value at the present price of $1,300 an ounce is $339.3 billion.
Let’s call it $340 billion.
Who has that kind of money?
The country’s foreign exchange reserves alone topped $4 trillion not that long ago.
More than $1 trillion of its current balance is in the Treasury’s own debt instruments.
The People’s Bank of China could write us a check at the drop of a hat.
In modern terms, it would be an electronic transfer.
The Treasury would have good, spendable funds in seconds.
China would then vault to the top of the list of the world’s top gold holders.
Its currency, the yuan, would bask in this golden glow.
Alternatively, Japan could do the same thing.
It also has a stash of more than $1 trillion in Treasury securities.
I don’t think Japan would have the same motivation as China to be a buyer.
Its currency, the yen, is already considered gold-plated by the world’s financiers.
However, Japan would be a friendly buyer.
It could agree to a short-term swap arrangement, giving the Treasury funds when they were needed.
Then the Treasury could buy the gold back at a pre-determined price and time after a government shutdown ends.
Will it happen?
But Donlan does pose the question of why else did the Treasury Secretary go to Fort Knox on Aug. 21 with congressional leaders?
Another good question.
The timing is interesting.
If the United States were to sell the gold, whether to China permanently, or to Japan temporarily, it would answer one interesting question.
Gold pundits for many years have alleged that the U.S. government does not actually own its gold any longer.
A sale would lay that question to rest once and for all.
And the State of Texas could buy Fort Knox to store its own gold.
After all, the federal government would no longer need it.
Buzz blogger Dave Harper won the Numismatic Literary Guild Award for Best Blog for the third time in 2017 . He is editor of the weekly newspaper "Numismatic News."
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