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Questioned by Paul, Fed denies any interest in gold

Submitted by cpowell on 03:27PM ET Friday, June 3, 2011. Section: Daily Dispatches
3:30p PT Friday, June 3, 2011

Dear Friend of GATA and Gold:

True to his word to when he met a GATA delegation in Washington a week ago, U.S. Rep. Ron Paul, R-Texas, chairman of the House Subcommittee on Domestic Monetary Policy, has begun asking the Federal Reserve questions about gold swaps, such as those admitted to GATA by Fed Governor Kevin M. Warsh in 2009:

http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf

At a subcommittee hearing Wednesday, Paul asked Fed General Counsel Scott G. Alvarez flat-out whether the Fed had engaged in any gold swaps. Alvarez denied the Fed's involvement in gold swaps but did so in a deceptive way, by pushing responsibility for the U.S. gold reserve to the U.S. Treasury Department.

"The Federal Reserve does not own any gold at all," Alvarez said, adding that all the Fed's gold was transferred to the Treasury Department in 1934.

While Paul noted that the Fed's books list as an asset the certificates issued by the Treasury against the U.S. gold reserve, Alvarez insisted, "We have no interest in the gold owned by the Treasury." Alvarez went on to suggest that the gold certficates are just antique accounting gimmicks. (Maybe the Fed now will offer the certificates for sale to the public as souvenirs.)

Pressed by Paul, Alvarez also said that he, and presumably the Fed generally, have no position on whether the United States should sell its gold reserves.

Of course the Fed's supposed indifference to gold as described by Alvarez contradicts much evidence GATA has collected over the years, including, just for starters:

-- Fed Chairman Alan Greenspan's famous testimony to Congress in 1998 that "central banks stand ready to lease gold in increasing quantities should the price rise." (See http://www.federalreserve.gov/boarddocs/testimony/1998/19980724.htm.)

-- Fed Chairman Arthur Burns' assurance to President Ford in 1975 that the Fed had a secret agreement in which Germany's central bank had promised not to buy gold at a price above the official U.S. price of $42.22 per ounce. (See http://www.gata.org/files/FedArthurBurnsOnGold-6-03-1975.pdf.)

-- And former Fed Governor Lyle Gramley's comment to Business News Network in Canada in December 2008 that, far from some antique accounting gimmickry, those gold certificates are actually hugely undervalued assets for the Fed and their repricing at market levels would much improve the Fed's balance sheet. (See http://www.gata.org/node/6989.)

In his questioning of Alvarez, Paul recognized that the most direct culprit in gold swaps may be the Treasury Department's Exchange Stabilization Fund. Maybe that's where the congressman will direct more questions.

Video of Wednesday's hearing has been posted at the C-Span Internet site. The exchange about gold begins at 56 minutes into the video here:

http://www.c-span.org/Events/House-Financial-Services-Subcmte-Hearing-on-Federal-Reserve-Lending-Disclosures/10737421940-1/

Some excellent commentary on the exchange has been posted at GoldNews.com in Toronto here:

http://goldnews.com/2011/06/02/fed-lawyer-alvarez-the-federal-reserve-does-not-own-any-gold-at-all/