Since 2014 I’ve been investigating the alleged audits of the US official gold reserves. Of course my goal is to figure out if these audits are credible, or if they’re invented by the US government to silence the people that think gold has any value and forms the very material basis for a well-functioning monetary system.
My first post on this subject, A First Glance At US Official Gold Reserves Audits, published on March 27, 2014, was purely based on publicly available reports. Not surprisingly, all those reports together compounded to a logical story. The US government wouldn’t present anything that’s implausible at the surface. That first post was more or less a summary of the official narrative. After that post I decided to dig a little deeper.
According to the Department of the Treasury’s Office of Inspector General (OIG), which is responsible for the audits, the vast majority of the US monetary stock stored at the US Mint had been audited by 1986, 241,247,820.61 fine troy ounces to be precise, as was said by Inspector General Eric M. Thorson during his Statement to the House Financial Services Committee on June 23, 2011:
… the Committee for Continuing Audit of the U.S. Government-owned Gold performed annual audits of Treasury’s gold reserves from 1975 to 1986. … by 1986, 97 percent of the Government-owned gold held by the Mint had been audited and placed under joint seal.
If this is true I would like to see those audit reports, I thought one day. My first Freedom Of Information Act (FOIA) request submitted in 2015 at the US government asked for delivery of all audit reports drafted by the Committee for Continuing Audit of the U.S. Government-owned Gold from 1975 until 1986. Stunningly, the OIG couldn’t find all the documents – nor did the National Archives, the Government Accountability Office or the Treasury. The OIG only had three of the audit reports in question archived. Something was awfully wrong here.
The essence of auditing the US gold stock is to reassure the global economy that in any extreme scenario all dollars in circulation are supported by gold providing essential confidence and credibility. Once it’s proven the gold is there, why throw away the evidence? I wrote about this in my post US Government Lost 7 Fort Knox Gold Audit Reports published on June 2, 2015.
In my post from June 2015 I announced I would submit new FOIAs at several US government departments to get to the bottom of this. And I did, I’ve submitted countless of FOIAs at the US Treasury, US Mint and the OIG, next to asking for information through conventional channels like email and phone calls. Sometimes the FOIAs were not honored, sometimes I received very intriguing bits of information. What I found out, inter alia, was that in between 1993 and 2008, 84,671,927 ounces were re-audited. Meaning, several compartments that were sealed in between 1975 and 1986 had been re-opened to access the bars inside. And strangely, the OIG cannot give me a proper explanation for these re-audits. Believe me, I’ve tried to ask numerous times.
Why was this gold re-audited? Why were sealed vault compartments re-opened and re-audited? These are just examples of questions my research is focussed on.
My interest in the subject did not pass unnoticed at the US government. In recent months I could clearly sense a strong defense by all departments in concert. Emails are not being answered, phone calls are not being returned, questions in my FOIAs are dodged, and in my most recent FOIA an unreasonable amount of money was asked for reports the Mint Director’s Representative writes every year for “notifying the CFO of the completion of the verification” of the Deep Storage gold audits.
5. Policy FIN-09, Deep Storage Asset verifications, paragraph 2v, and MD 8H-3 paragraph 6a, both include the requirement that the Director’s Representative submit a written report to the Chief Financial Officer (CFO) notifying the CFO of the completion of the verification.
After reading this paragraph I thought maybe these reports by the Mint Director’s Representative would disclose valuable information. As the US government was barely talking to me anymore, I submitted a new FOIA request at the Mint in 2016 that stated:
In the “Management Letter for the Fiscal Year 2004 Audit of the United States Mint’s Schedule of Custodial Gold and Silver Reserves March 10, 2005”, drafted by the OIG, it states:
“Policy FIN-09, Deep Storage Asset Verifications, paragraph 2v, and MD 8H-3 paragraph 6a, both include the requirement that the Director’s Representative submit a written report to the Chief Financial Officer (CFO) notifying the CFO of the completion of the verification.”
I would like to obtain all these reports by the US Mint Director’s Representative to the Chief Financial Officer written 1993 – 2008.
The Mint replied this request would costs $3,144.96 dollars, because it would take forty hours to search the documents – as the requested documents are located at another facility – eight hours to review the documents and additional costs would be added to duplicate 1,200 pages of documentation. I think this is nonsense; it shouldn’t take forty hours to search these documents and I would be surprised if they actually count 1,200 pages. This is just another way of trying to shake me off.
However, thanks to Henry Young‘s advice on Twitter I decided to launch a crowdfunding campaign on GoFundMe to collect the money! If we all donate a few bucks, who knows what comes out!
I’ve started a crowdfunding campaign to collect the money for the FOIA re Fort Knox!! Please click here and retweet https://t.co/XsNs607zwS
After I tweeted about the campaign it quickly went viral. The news was spread on websites such as TFMetals, GoldMoney, GATA and GoldChartsRus – among others – and within a few hours the funding was completed, which shows to me the power of our gold community! I was truly overwhelmed by everybody’s generous donations and support. As of this moment there is even more money collected than I asked for at GoFundMe (please stop donating!). The residual will be saved for when the costs appear to be higher or if they charge me for any other FOIA I’ve submitted. Naturally, I will publicly keep a record of expenditures in the comment section of my GoFundMe page.
Next for me is to transfer the money to the US Treasury and wait what they’ll sent back. If I’m offline for a weeks in September, that’s because I’m digesting 1,200 pages of dense jargon.
I will disclose a list with all the names (mostly Turdites) who have donated in the finished post on the audits of the US official gold reserves. For now, thanks everybody who donated and I’ll keep you posted!!
Early 2014 my first post was published about the audits performed on 95 % of US official gold reserves – the 7,628 tonnes stored by the US Mint – this is referred to as Deep Storage gold, 4,583 tonnes is at Fort Knox, 1,364 tonnes in Denver, 1,682 tonnes at West Point. In total US official gold reserves account for the 8,134 tonnes, owned by the US Treasury. My focus has always been the gold at the Fort Knox depository, as this is the largest facility. At the very surface the official story presented by the US government regarding the existence of Deep Storage gold seems credible. However, while investigating we could observe the official story is anything but credible.
During my research I’ve reached out to Edmund C. Moy, 38th Director of the US Mint from 2006 until 2011, who was very helpful in answering all of my questions over Twitter and email. Although this gentleman has been very cooperative, many of his statements in various media and emails appeared to be false and self-contradictory. For the sake of simplicity we will focus on Moy’s statements at a coin expo in 2013, an article he wrote for Newsmax Finance early 2014 and emails he wrote me in response to my questions.
Moy has given me permission to publish the emails he sent to me.
1. False Statements At Coin Expo November 2013
It al started with a video from the Whitman Coin And Collectables Exposition in Baltimore November 2013. Below you can find the video:
1.1. What Did Moy See At Fort Knox?
Let’s go through this, quote one: “I’ve been inside of Fort Knox, and I’ve seen the gold. So I know it’s actually there… I can personally vouch there is gold at Fort Knox and I personally have seen it”. On camera Moy states he has seen a good portion of the gold at Fort Knox, which has assured him to vouch for the existence of the gold. Although a visual inspection of 446,698 gold bars will not pass as an audit, what we’re analyzing is, what did Moy actually see? From the video you would think he was granted access to the vaults and properly saw (and touched) the gold in all compartments.
As was published in a previous post, allegedly 100 % of the gold at Fort Knox has been audited in between 1974 and 1982 during the Continuing Audit Of US Government -Owned Gold program. After these audits all vault compartments were placed under Official Joint Seal (before the Continuing Audits program the compartments were under Official Joint Seal as well). From film footage inside Fort Knox in 1974 we can see a corridor with vault compartments covered with the seals.
At the end of the corridor we can see vault compartment 33. In front of the vault door there is a ribbon waxed to an Official Joint Seal. It is impossible to open the vault without impairing the ribbon. We can see no window in the vault door of compartment 33 (first pictures), only a very tiny peephole (last picture). At this point we can raise the question to what degree Moy has seen the gold while vault compartments are sealed and there are only tiny peepholes in the compartment doors. From my judgment looking through a peephole at best confirms there is yellow stuff on the other side.
The Treasury Office Inspector General (OIG), which is currently responsible for the Deep Storage gold audits, has told me it is absolutely not routine to break the seals. Neither for inspection by a US Mint Director nor for the President of the United States will the seals be broken. There is one possibility Moy could have properly seen the gold; in 2010 the US Mint renewed all the Official Joint Seals, the ones put in place after 1974 with the delicate ribbon and wax were replaced for new plasticized seals with steel cables. (Yes, technically at that moment the seals were renewed all 42 Deep Storage compartments could have been opened.)
There is a possibility Moy properly saw the gold if he was present when the seals were broken and the doors opened before the new seals were put in place. At the Gold Transparency Act in 2011 the OIG stated:
More recently the Mint decided to replace all of the previously placed Official Joint Seals with new seals. The new seals are more durable, having a double security barrier seal that can only be removed by two cuts with a strong cable cutter.
The Mint replaced all of the previously placed Official Joint Seals with new ones during fiscal year 2010. The seal replacement process consisted of two steps: (1) inspection of all previously placed Official Joint Seals on all the compartments containing deep storage gold to determine whether they had been altered or compromised in any way, and (2) placement of a new Official Joint Seal. The seal inspection and replacement process was carried out for all 42 deep storage gold compartments, in the presence of a Treasury OIG auditor, by a Mint headquarter staff person, representing the Mint Director, and a Mint storage facility staff person, representing the facility’s Plant Manager. For each Official Joint Seal removed, the Mint headquarters representative, the Mint storage facility representative, and the observing Treasury OIG auditor signed an inspection report; the same parties also signed the new Official Joint Seal that replaced the one removed.
The report mentions “a Mint headquarter staff person, representing the Mint Director” was present when the seals were renewed, not the Mint Director himself. Concluding Moy was not present when the seals were renewed, therefor he only could have seen the gold through the tiny peepholes.
1.2. Not All Gold Fort Knox Supplied By Confiscated US Coins
Quote two, “And these bars up at Fort Knox are … looked like dirty gold with some corrosion on them and they’re not as yellow. … And then you realize, Roosevelt had made it illegal for Americans to physically possess gold coins, and he melted all those gold coins and that’s what ended up being the initial stock at Fort Knox. A lot of those coins were 22 karat gold which then have impurities. You know and a lot of it wasn’t refined when it was made into these bars that ended up making it into Fort Knox. When you take a look at them, at each bar, you realize what history is behind it, how many coins must have been melted in order to make the bar, and what life stories must’ve been part of all that.”
Moy describing how all gold coins that circulated in the US in 1933 were confiscated by President Roosevelt and filled the vaults in Fort Knox is only partially true. In 1933 gold coins in the US accounted for 2,515 tonnes, of which 1,901 tonnes were already held at banks and the government. The difference, 614 tonnes, could not have made US gold reserves increase by 13,041 tonnes (from 6,505 tonnes in 1933 to 19,546 tonnes in 1940). The dramatic rise in US gold reserves was caused by imports – as was demonstrated in my post Where Did The Gold In Fort Knox Come From? Part One.
Before Word War Two it was common knowledge that the increment of the US official gold reserves and thus Fort Knox was due to imported metal. One book that I know of was published in 1939, it’s titled Golden Avalanche; it describes how the devaluation of the US dollar against gold in 1934 triggered a global mining boom and an avalanche of gold that hit the shores of the United States.
I’m not sure exactly when and why “experts” started spreading the myth about the US coins that filled Fort Knox.
1.3. The Gold In Fort Knox Is Not Yearly Audited
Quote three, “So once a year the US Mint police coordinates with the Treasury Inspector General, and coordinates with the Mint chief financial officer, and they have to audit the gold. When you take a look at these bars, each one is numbered. They have to be taken out, counted, and assayed, to make sure they still have everything in it that they’re supposed to. When it’s all done they’re put back in in the same order as they have been taken out. So when you take a look at these vaults, again I can’t tell you how much is in there and how they’re organized, but there is a lot of bricks in there.”
This is simply not true. The official story from OIG is that 100 % of the gold stored at Fort Knox was audited in between 1974 and 1986. After 1986 the gold at Fort Knox has not been not audited every year. Apparently Moy has always been unaware of the audit procedures at the US Mint while he was the Director of this institution and presents himself as an expert. Did Moy have any sight or control over the Deep Storage gold when he was in office?
2. False And Contradicting Statements In Moy’s Newsmax Article
In June 2014 Ed Moy published an article about the gold at Fort Knox at Newsmax Finance. From Moy’s appearance at the coin expo and this article it seems he’s on a mission to debunk rumors that suggest Fort Knox is empty. Unintendedly he’s feeding the speculation. In his article Moy has changed his mind on several topics, he starts by saying the minority of the bars in Fort Knox are coin bars (roughly 90 % pure). From Moy’s article:
Is There Gold in Fort Knox?
A minority of the bars were made from the melted coins and have a tarnished appearance because the coins were only 90 percent pure gold. …The majority of the bars are standard 400 ounce good delivery bars.
Opposite to what Moy said at the coin expo he writes a minority of the bars at Fort Knox are 90 % fine and the majority are Good Delivery bars (this suggests they are above 99.5 % pure). This cannot be true. In 2011 a detailed bar list was published by the US Mint that shows the vast majority of the bars are roughly 90 % pure. To be precise the Fort Knox gold has an average fineness of 91.67 %, 83 % of the gold at Fort Knox are coin bars (roughly 90 % pure), 17 % of the gold is Good Delivery (> 99.5 % pure). Yet, Moy was not aware of the bar list at his own facility.
More from the Newsmax article:
In 1953, the U.S. Department of the Treasury and the General Accounting Office (representing Congress) conducted a full audit of the gold at Fort Knox. Each bar was removed, documented and cross-referenced. Five percent of the gold was randomly assayed.
In 1974, then-Mint Director Mary Brooks led the first-ever public tour of the classified facility. The 120 visitors included members of Congress and the news media. …. When the delegation was satisfied, the vaults were again carefully sealed.
Each of the years I was Mint Director, the Inspector General of the U.S. Treasury and the Office of the Chief Financial Officer of the U.S. Mint conducted an audit of the gold in Fort Knox. Each of the vaults is sealed with a special tape that is designed to show any forced entry. The audits since the last full audit in 1953 have been mainly checking to make sure the seal has not been broken or tampered…
Apparently Moy had changed his mind about when and how the Fort Knox audits were performed. On the coin expo he shared the gold is physically audited every year, one year later we’re told the gold was audited in 1953. Typically, both statements are in conflict with the official story. In 1953 a meager 13.6 % of the gold was audited (the details of the 1953 audit can be read in the audit report from 1953), and since 1953 the gold has not been physically audited every year – most audits were performed from 1974 until 1986.
How hard can it be to at least verify the official story before writing an article? It’s hard to believe Moy had anything to do with Deep Storage gold during his tenure as US Mint Director.
3. Email Correspondence Anything But Convincing
My first question to Moy over email was about his statement at the coin expo, “every year the bars have to be taken out, counted, and assayed, to make sure they still have everything in it that they’re supposed to”. Moy replied:
The video is from a beginner’s coin collector seminar I gave at a Whitman Coin & Collectible Expo. Because of the audience, I had to simplify my remarks, especially with this question during the Q&A session. So it came off implying something incorrect. Until 1953, there were serial number audits of the gold and some assaying as I explain but that became costly and time intensive. The last full audit was done in 1953 (my understanding was that it was a serial number audit with random assaying of 5% the bars and did not use outside auditors). All the vaults with the audited bars were then sealed with tape and wax in a way as to tell if the seal has been tampered with.
In this instance it’s my humble opinion his remarks could have been simplified without corrupting the essence. Besides, coin collectors are not audiences that need a kindergarten version of a procedure that is plain and simple of itself: the gold was (allegedly) audited from 1974 until 1986 and placed under Official Joint Seal, after which the seals have been checked every year. Remarkably, he’s making it worse by mentioning the last full audit was in 1953, which is not true.
Second, because there was a very slight possibility he could have properly seen the gold in 2010 – when the seals were renewed – I decided to ask when exactly he saw the gold.
In what year did you see the gold at Fort Knox? Or did you see it every year when you were in office?
I saw it for the first time at the end of 2006 and at least once a year every year thereafter when I was mint director.
…how could you have seen the gold if all compartments were placed under Official Joint Seal during the continuing gold audit program from 1974 – 1986?
Each compartment’s door has a small window in it. Further, each compartment has an interior light that is controlled by a switch on the exterior wall near the door. My inspection consisted of inspecting the seal, turning on the light, and visually inspecting the gold in each compartment.
Moy confirms all he has seen was through the peepholes – a visual inspection that doesn’t impress me. More importantly, Moy states he inspected the seals every year. Let’s have a look at one of these old seals that came of a Deep Storage compartment in 2010 (Vault J, compartment 2, Denver).
On the seal there a two dates stamped:
We whose signatures appear hereon certify that the entire contents of the sealed compartments above specified have been personally verified by us in the manner prescribed for such duty in joint sealing regulations as described below an that the contents are accepted in accordance with method 5 of the Official Joint Sealing Regulations, Official Joint Seal No. 949 dated September 3, 1981. Relocated from Vault J, Compartment 19.
Moy claims to have inspected all seals at least once a year. Did it ever occur to him the seals were not stamped in 1953? His most recent assumption (Newsmax article) is that the last full audit was conducted in 1953, while all the seals he inspected must have been stamped after 1974. Are we supposed to believe the Director of the Mint could have missed the date on the seals, which grants the safety of the largest stock of wealth on earth at the facilities he guided, numerous times when he inspected them? At this point it is safe to say Moy’s inspections of the Deep Storage gold carry little significance in terms of proof there is gold at Fort Knox.
Next, I asked Moy how come he wrote in the Newsmax article the minority of the bars are 90 % pure and the majority is Good Delivery, while according the official excel sheet it’s exactly the other way around. Moy replied:
That is what I was told by the Fort Knox protection staff. I would recommend a FOIA request from the IG or the US Mint posing the question to get an official answer with appropriate documentation. That way you could be the first to break the news. FYI, my visual inspection of all the vaults at all three facilities showed a mixture of good delivery and coin bars (you can easily tell the difference between the two just by looking at them).
When he was in office Moy knew little about the gold (as you may have guessed by now), as he was informed about it by the Fort Knox protection staff. It appears Moy had little authority over the Deep Storage gold. A FOIA regarding the bar list is not necessary, neither is breaking the news, as this information is already publicly available – since 2011.
Lastly, Moy turns again and writes me the gold he saw at Fort Knox was a mixture of good delivery bars and coin bars (in the Newsmax article the majority was supposed to be Good Delivery). Depending on the definition of “mixture”, what he finally wrote over email could be correct – 17 % of the gold at Fort Knox is Good Delivery. (According to the bar list there are 759 tonnes of Good Delivery gold at Fort Knox, in total there are 4,583 tonnes of gold stored in 15 compartments)
Taking everything Moy has said and written in consideration it’s very weird he has been so outspoken while having done “little homework”. Many documents have been publicly released from the Gold Transparency Act in 2011, but Moy still is poorly informed on the audit procedures and the bar list, resulting in very unfortunate public statements. The fact he still (after 2011) is wrong on the audits and bar list mainly points out his personal incompetence, which makes everything else he has said and written useless for our analysis regarding Deep Storage gold. What do his erroneous statements proof? Well, by all means, they do not proof there is gold at Fort Knox.
Keep in mind Moy’s proposal is for Congress to authorize a new comprehensive audit. Maybe he’s not so sure if he saw the gold after all.
What is not often covered in the media or blogosphere are the audits of the US official gold reserves stored at the US Mint, which is the custodian for 95 % (7716 tonnes) of the stash – nowadays also referred to as custodial deep storage, and at the Federal Reserve Bank Of New York that safeguards the remaining 5 % (418 tonnes). The lawful owner of the US official gold reserves is the US Treasury. Part one covered the most recent records I could find published by the US government, in this post we’ll examine more historical records and approach this matter from a more critical angle. Because of the amount of information I found this post is split in multiple parts.
Auditing is defined as a systematic and independent examination of data, statements, records, operations and performances (financial or otherwise) of an enterprise for a stated purpose. In any auditing the auditor perceives and recognizes the propositions before him for examination, collects evidence, evaluates the same and on this basis formulates his judgment, which is communicated through his audit report.
Due to constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. Hence, statistical sampling is often adopted in audits.
To be sure, I’ve asked several bullion dealers about how their audits are being conducted. They all agreed an audit involves three parties: the owner of the gold, the custodian and an external (independent)auditor. The external auditor examines the gold, compares its findings with the statements of the custodian and then reports on the accuracy of the statements of the custodian to the owner of the gold. An example of an audit report by such an external auditor can be found here.
The fact that the auditor is an external party is essential; if the custodian itself would perform the audit it could easily falsify the reports and lend gold that isn’t often transferred in and out of the vaults.
What Is A Gold Assay?
Assaying gold is done to test the purity of the metal; to make sure a bar contains at least the amount of fine gold disclosed on its inscription. For assay tests often samples are taken from random bars (not from all bars of a specific inventory). From Wikipedia:
A metallurgical assay is a compositional analysis of an ore, metal, or alloy. Raw precious metals (bullion) are assayed by an assay office. Silver is assayed by titration, gold by cupellation and platinum by inductively coupled plasma optical emission spectrometry.
Allegedly the deep storage gold at the US Mint is currently stored in 42 vault compartments at three different locations in the US. 4,583 tonnes is stored at Fort Knox, Kentucky, 1,364 tonnes in Denver, Colorado, and 1,682 tonnes at West Point, New York.
The last time the US official gold reserve audits were publicly discussed was in 2011 when Ron Paul, who was a well informed member of the US House of Representatives, proposed new legislation at the time to have a full audit of the US holdings: The Gold Reserve Transparency Act (H.R. 1495, not enacted). Strangely Dr Paul wasn’t up to date of the audit and assay procedures performed since 1974, while he was in politics because of gold since 1971. From Wikipedia:
When President Richard Nixon “closed the gold window” … on August 15, 1971, Paul decided to enter politics and became a Republican candidate for the United States Congress.
Only during the preparation of the congressional hearing Dr Paul became aware of the audit and assay procedures. From Paul’s opening statement at the hearing June 23, 2011:
For far too long, the United States Government has been less than transparent in releasing information relating to its gold holdings. Not surprisingly, this secrecy has given rise to a number of theories about the gold at Fort Knox and other depositories.
Some people speculate that the gold has been involved in gold swaps with foreign governments or bullion banks. Others believe that the gold has been secretly shipped out of Fort Knox and sold. And, still others believe that the bars at Fort Knox are actually gold-plated tungsten. Historically, the Treasury and the Mint have dismissed these theories rather than addressing these concerns with substantive rebuttals.
The difference between custody and ownership, questions about the responsibility for U.S. gold held at the New York Fed, and that issue of which division at Treasury is ultimately responsible for the gold reserves are just some of the questions that have come up during the research for this hearing. In a way, it seems as though someone decided to lock up the gold, put the key in a desk somewhere, and walk off without telling anyone anything. Only during the preparation for this hearing was my office informed that the Mint has in fact conducted assays of statistically representative samples of gold bars, and we were provided with a sample assay report.
While the various agencies concerned have been very accommodating to my staff in attempting to shed some light on this issue, it should not require the introduction of legislation or a congressional hearing to gain access to this information.
Why did Paul not know about this? Why did it take a congressional hearing to get the details of the audit and assay tests? Why wasn’t this information easily accessible to him and the American people?
Gold Audits At Fort Knox
The construction of the notorious gold depository was finished in 1936 at the Fort Knox army base in Kentucky; large quantities of gold were first deposited in 1937. After President Roosevelt had ordered the people of the United States to sell all their gold coins and bullion for $20.67 per fine ounce to the Federal Reserve in 1933, through Executive Order 6102 (the great gold confiscation), a fortress was needed to store the bars that were coming out of the smelters of the seized gold. The bars that were melted from gold coins are approximately 90 % pure, the majority of the bars, allegedly, in Fort Knox are coin bars. Though, research has pointed out the huge growth in US official gold reserves after 1933 has primarily been sourced from imports, not by domestic coins.
The Gold Reserve Act of 1934 required the Federal Reserve to transfer ownership of the official gold reserves to the Department of the Treasury, in return it received gold certificates (that are mere redeemable for dollars). The US Mint was assigned to safeguard the Treasury Department’s gold, silver and other assets at several depositories across the US, among others at Fort Knox and Denver.
To research the integrity of the audits performed at Fort Knox (and the other depositories) in all of history, we’ll start from the beginning and work our way to the present. The first audit I could find dates from 1953, when total US reserves accounted for roughly 20,000 tonnes. Many researchers that have worked on this subject in the past refer to the first and last full audit of 1953. However, the audit in 1953 was anything but full.
During my research I came across many articles of researchers that have investigated Fort Knox audits – Ed Durell, James Turk and Tom Szabo, to name a few. Often these articles contained dead web links to documents on US government websites. Everything that was still accessible during my research I copied to my own servers to secure access to them at all times.
The next quotes are from the official report of the gold audit in 1953 (download here).
Fiscal Year Ended June 30, 1953
REPORT ON FISCAL OPERATIONS
VERIFICATION OF GOLD AND SILVER BULLION AND OTHER TREASURY ASSETS
…The audit was performed in accordance with procedures which were recommended by an advisory committee of consultants appointed jointly by the present Secretary and his predecessor in office. Members of the advisory committee were W. L. Hemingway, Chairman of the Executive Committee of the Mercantile Trust Company, St. Louis, chairman; Wm. Fulton Kurtz, Chairman of the Board, The Pennsylvania Company, Philadelphia; Sidney B. Congdon, President, National City Bank of Cleveland, Cleveland; and James L. Robertson, Member, Board of Governors, Federal Reserve System, Washington. As had been suggested by the advisory committee, the audit was conducted under the general supervision of a continuing committee representing both incoming and outgoing Treasury officials. Representatives of the Comptroller General of the United States observed the audits at each of the various audit sites.
In accordance with a recommendation of the advisory committee the special settlement committee at the Fort Knox depositary opened three gold compartments, or 13.6 per cent of the total of twenty-two sealed compartments at that institution containing 356,669,010.306 fine ounces [11,094 metric tonnes] of gold valued at $12,483,415,360.28.All of the gold contained in the three sealed compartments opened, amounting to 34,399,629.685 fine ounces [1,070 tonnes] valued at $1,203,987,038.94 or approximately 88,000 bars, was counted by members of the settlement committee and found in exact agreement with the recorded contents of the compartments.Slightly in excess of 10 per cent of the total gold values so counted, or some 9,000 bars weighing approximately 130 tons, was further verified through weighing upon special balance scales indicating exact weights to the 1/100 part of a troy ounce.All gold weighed was found in exact agreement with the recorded weight thereof. Further, test assays were made of 26 gold bars selected at random from the total gold counted. The reported results of the test assays indicated, that all gold tested was found to be of a fineness equal to or in excess of that appearing in the mint records and stamped on the particular gold bars involved. Gold samples used for test assay purposes were obtained through drilling from both the top and bottom of each representative gold bar. In final confirmation of the verification of the gold bullion asset values held in the Fort Knox depositary the special settlement committee reported in part as follows:
“0n the basis of assays, your committee can positively report that the gold represented, according to assay, is at the depositary. We have no reason, whatsoever, to believe other than, should all melts be assayed, the results would be the same.”
“We, the undersigned, found the assets verified, to be in full agreement with the assets as indicated by the joint seals affixed to the respective compartments on January 26, 1953.”
“It is the opinion of this committee that the same agreement would be found should all of the compartments be verified.”
In short; an advisory committee of “consultants” assembled special settlement committees that, under the supervision of Treasury officials and Representatives of the Comptroller General,audited 3 of in total 22 compartments filled with gold (it’s likely Fort Knox has many more compartments in total). 13.6 % – 1,070 tonnes – of all the gold bars held at Fort Knox was counted, of which 9,000 bars were weighed upon special balance scales and 26 bars were assayed. The document notes procedures at other depositories closely paralleled those employed at Fort Knox, though no numbers are disclosed.
In 1953 the US Treasury held approximately 1,300,000 gold bars at multiple depositories of which 88,000 were counted, 9,000 were carefully weighed and 26 bars (0.00002 %) were assayed; no external auditing firm was present. This was not a full audit.
The other full audit that keeps buzzin around in the media was the one in 1974, because the media was actually allowed to enter the fortress back then. On September 23, 1974, roughly 100 journalists were allowed entrance, accompanied by 9 members of Congress.
When the total US official gold reserves had declined by 11,500 tonnes from 1953 to 1974, many Americans began to doubt if the US actually had any gold left at all, especially after Nixon had temporarily suspended the convertibility of dollars for gold at the US Treasury in 1971. The amount of gold at Fort Knox had dropped from 11,094 tonnes (stored in 22 compartments) to 4,585 tonnes (stored in 13 compartments). In an attempt to reassure the American people not all gold was gone a new audit was scheduled.
From several sources we know for the visual inspection by the press and congressmen only one compartment was opened, in which 368.2 tonnes was stored. I edited a small video clip from a History Channel documentary for us to take a look inside Fort Knox.
Whether one or multiple compartments were opened is actually irrelevant, unqualified people looking at a wall of yellow bricks and weighing a few bars will not pass as an audit.
The director of the Mint in 1974, Mary Brooks, did a remarkable confession when the press asked if there is a tunnel to the vault. She showed a narrow tunnel, the size of a sewer pipe, which could only be opened from inside the vault in case someone was trapped – no pictures were allowed to be taken from the tunnel. The escape could only be made outside the vault, not the building itself, she said. There are thus three connections to the vault, the front door, the back door and the tunnel.
The real audit started the day after, on September 24, 1974. This audit was performed by “a committee including auditors from GAO and from Treasury’s Office of the Secretary, Bureau of Government Financial Operations (BGFO), U.S. Customs Service, and Bureau of the Mint. The committee also included Bureau of the Mint technicians trained in assaying and weighing gold bullion”. No external auditor was hired; the US Mint, a department of the US government, can audit the gold in cooperation with thousands of other government departments, only an external auditing party can ensure the integrity of an audit.
Again three random compartments were opened (theoretically one or two could have been the same compartments that were opened as in 1953 as no compartment numbers have been disclosed in the audit reports). From the official audit report published in 1975 (download here):
Mint regulations require that a special settlement committee be established to inventory and maintain physical control over the gold as it is being inventoried, weighed, and sampled. We selected the compartments to be audited, and we did not disclose this information until the inventory began. The committee opened 3 compartments and counted and inspected 91,604 bars representing about 31.1 million fine troy ounces [967 tonnes] of gold valued at about $1.3 billion, or approximately 21 per cent of the gold stored at the depository. From a random sample of all melts in the 3 compartments, the committee weighed 95 melts to the 100th part of a troy ounce. The committee also compared the weights and physical characteristics of all gold … inventoried to inventory records.
To verify the gold’s fineness, a bar from each melt weighed was assayed. Gold samples were obtained by taking a tetrahedron-shaped chip, weighing about four-tenths of an ounce, from both the top and the bottom of the representative gold bar. We assigned control numbers to the sample chips, because the assayer could possibly determine, without assay, the gold’s fineness if he knew the value or melt number from which the chips came. The New York assay office assayed the gold and gave us the results for comparison with inventory records. We observed the assaying of the first samples. The results of the assays indicated that the recorded finenesses were within the tolerances the Mint established.
No assay report was included.
In 1975 a Committee was appointed for the Treasury’s continuing audits of U.S.-owned gold stored at the Mint. The operation was designed to audit 10 % of the Treasury’s gold per annum. Inspector General (IG) Eric Thorson stated in 2011 during the hearing by Ron Paul:
In June 1975, the Treasury Secretary authorized and directed a continuing audit of U.S. Government-owned gold for which Treasury is accountable. Pursuant to that order, the Committee for Continuing Audit of the U.S. Government-owned Gold performed annual audits of Treasury’s gold reserves from 1975 to 1986, placing all inventoried gold that it observed and tested under an official joint seal.
The committee was made up of staff from Treasury, the Mint, and the Federal Reserve Bank of New York. The annual audits by the committee ended in 1986 after 97 per cent of the Government owned gold held by the Mint had been audited and placed under official joint seal.
These continuing audits would be the first to examine such a large share of the US official gold reserves, 97 % of all the gold held by the Mint equals to 7,485 tonnes, or 92 % of total US official gold reserves. At the same time, this is where the confusion starts. Let’s find out all there is to know about the continuing audits conducted from 1975 to 1986, as this should be what we’re after, the audit of nearly all US official gold reserves.
From the full report that came out of the congressional hearing in 2011, the US Treasury’s best defense I assume, these are the audit reports in existence since the early seventies:
We are not interested in the audits of financial statements of the Mint, but in audits of the physical inventory gold.
At first sight we can see that not from all years the continuing audits were supposedly performed (1975 to 1986) reports are listed. Only the following audit are disclosed:
1974 (released by the GAO 2/10/1975)
1977 (released by the GAO 5/5/1978)
1980 (released by the GAO 10/1981)
1985 (released by the OIG 4/25/1986)
1986 (released by the OIG 4/24/1987)
The continuing audits report of 1981 notes audits have been performed in 1975, 1976, 1978 and 1979, but no reference is made to audit reports. Only the amount of gold audited in each of those years is mentioned.
The list from 2011 is entitled “List of audits of US gold holdings” suggesting these are the only audits performed.If more audits were conducted they surely would have been disclosed on the 2011 list, right? Also the ones from 1981, 1982, 1983 and 1984. Or were audits conducted, but no reports drafted? More on this later, for now, we’ll focus on the content of the audit reports from the 2011 list:
The first audit report (1974) on the list we’ve discussed above, let’s have a look at the second from 5/5/1978 that covers the audit performed in 1977 (download here).
Reading the report unveils a few problems:
No external auditor was present.
11.7 % , or 536 tonnes, of the gold at Fort Knox was audited, but it’s not mentioned how many bars were counted, weighed and assayed.
The assay tests found irregularities. From the report:
Two sample melts showed the gold was below the fineness (5 parts per 10,000) permitted by the Bureau. Because of this problem, the vault had to be opened twice more in the presence of the Joint Sealing Committee and the gold reevaluated. This involved considerable time and expense, but was necessary because the fineness of gold must be precisely determined.
On July 29, 1977, bore samples, rather than chips, were taken from the questionable melts and sent to two assay offices for independent evaluations. Half of the samples reassayed were still unacceptable. The Bureau decided that the two melts from which the samples were taken had to be remelted and reassayed. This was done on November 16 and 17, 1977. This time, the gold was within the prescribed level of fineness but below the fineness listed on the inventory schedule. The difference in the original and revalued fineness resulted in a $158.77 adjustment to the records, which was considered insignificant. Previous discrepancies in fineness were attributed to improper melting and casting of the melts in 1920 and 1921. Bureau officials said the remelting process confirmed the validity and integrity of their audit procedures and assays.
We can ascertain the assay tests at Fort Knox in 1953 were done by drilling holes through the bars; in 1974 and 1977 the assay tests were changed to “taking a tetrahedron-shaped chip, weighing about four-tenths of an ounce, from both the top and the bottom of the representative gold bar”. When this method ‘failed’ in 1977, the committee decided to drill holes, but why was the method of initial assaying changed from drilling holes through the bars, into taking chips from the top and bottom of the bars? When in 1977 the bore samples failed to proof the purity on the inventory list, both melts in question were remelted. But, who processed the remelting? How do we know the metal wasn’t refined/supplemented into higher purity gold? The report states that after the remelting,“This time, the gold waswithin the prescribed level of fineness but below the fineness listed on the inventory schedule. The difference in the original and revalued fineness resulted in a $158.77 adjustment to the records”. To me it’s not clear what this means. Some kind of adjustment was made and the auditors decided to move on? Didn’t this ring any alarm bells, if irregularities were found in two melts why wasn’t more gold assayed?
Apart from the negative assay test, the 1977 audit report is not reliable because it doesn’t disclose any information about how many bars were counted, weighed or assayed.
In the next part we’ll continue from the 1981 audit.
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