Idaho State House approves bill to hold gold as inflation, risk hedge
House Bill 7, the Idaho Sound Money Reserves bill, found overwhelming support in the House, passing by a 51-19 vote. The bill will now head to the Idaho Senate for a hearing, which is expected to start as early as next week.
According to the bill, the proposed legislation would permit – but not require – the State Treasurer to hold some portion of state funds in physical gold and silver to help secure state assets against the risks of inflation and financial turmoil and/or to achieve capital gains as measured in Federal Reserve Notes.
The legislation was introduced by Rep Ron Nate (R-Rexburg) and Senator Steve Vick (R-Dalton Gardens). In earlier testimony in front of the House State Affairs Committee, Rep. Nate said, "With new concerns about financial instability, it makes sense for investors, and it makes sense for states, to turn to real assets, especially in terms of precious metals, to protect their funds."
The legislation is backed by the Sound Money Defense League, a national public policy group that is working to promote gold and silver as recognized currency in the U.S.
The group noted that because Idaho's reserves, which is made up of low-interest bonds, have mustered a return well below 2% -- a negative rate of return when adjusted for inflation.
"Because of market conditions and statutory constraints, Idaho's reserves are invested almost exclusively in low-yielding debt paper – such as corporate bonds, tax-anticipation notes, municipal bonds, repurchase agreements, CDs, treasuries, and money market funds," said Jp Cortez, policy director for Sound Money Defense League in a statement.
"These debt instruments appear to have low volatility, but they carry other risks – including pernicious inflation and the steady erosion in real value of principal, coupled with interest rates that are negative in real terms," Cortez added.
Idaho has been a strong advocate for holding gold as a safe-haven asset but they are not alone. In late-August 2020, the Ohio Police & Fire Pension Fund (OP&F) approved a 5% allocation into gold in a move to diversify its portfolio and hedge against the risk of inflation.
The fund currently holds about $16 billion in assets under management. The gold recommendation was made by the fund's investment consultant, Wilshire Associates.