(Kitco News) - The U.S. government, as it looks to cut costs, could be sitting on a nearly $800 billion windfall, but some analysts say the long-term risks may outweigh any short-term gains.
There is growing speculation that the U.S. government could adjust the value of its gold reserves. The U.S. Treasury holds the world's largest gold stockpile of 8,100 tonnes; however, the value of this gold hasn't changed since 1972, when the price was set at $42 an ounce.
Some analysts have noted that if the government revalued its gold reserves at current prices, which are above $2,900 an ounce, it could add more than $760 billion to the Treasury Department's coffers.
Speculation surrounding the U.S. government's gold hoard started to ramp up last week after newly-minted Treasury Secretary Scott Bessent said that he would "monetize the asset side of the U.S. balance sheet."
However, on Thursday, Bloomberg reported that an unnamed source said this idea was not "under serious consideration" among President Donald Trump's top economic advisers.
Some market analysts have also suggested that this might not be the best way for the government to improve its balance sheet.
In a note to Kitco News, Robert Minter, Director of ETF Strategy at abrdn, said that higher government gold prices won't materially change the government's balance sheet problems.
"Marking this gold to market (~$3,000/oz) improves the asset-liability ratio of the Fed but only gets it into the neighborhood of major U.S. banks like Goldman Sachs," he said. "The U.S. Federal Reserve has a ~12:1 asset-liability ratio (leverage ratio), with revalued gold (every $1 of assets has $12 of liabilities). Major U.S. banks have a ~11:1 asset-liability ratio. The U.S. Federal Reserve has a ~179:1 asset-liability ratio, with $42 gold (every $1 of assets has $179 of liabilities)," he wrote in the note.
Nicky Shiels, Head of Research and Metals Strategy at MKS PAMP, said in a note on Thursday that the funds generated would be a drop in the bucket as U.S. debt is north of $36 trillion. While this remains a hypothetical debate, Shiels said that it is not clear if this would be bullish or bearish for gold.
However, she did highlight some risks, as this would be a one-off boost for the Treasury Department. A second risk is that this revaluation would come as gold prices are trading near all-time highs.
This is not the first scheme involving the government's gold holdings that potential Trump advisers have floated in the news.
Stephen Miran, Trump's nominee to lead the White House Council of Economic Advisers, has suggested that the U.S. government could sell its gold and use the proceeds to buy other currencies. This would weaken the U.S. dollar, giving the nation a trade advantage.
Selling the U.S. gold reserves would also impact the reserves of emerging market central banks that have been accumulating the precious metal at record rates for the last three years.
Meanwhile, last year, Judy Shelton, who has been floated as a potential pick by President Donald Trump to lead the Federal Reserve, advocated for the government to issue bonds payable in gold.
