Gold and silver prices are down

[Varmint]

Sorry, it doesn't work that way. If you hold gold and it goes up in price, your net worth increases, but you don't magically get any more money to spend or put into your bank account. Nor, if as a business you have to write down an asset, do you have to take money out of your account to pay for it.

The same is true of the Treasury General Account, which is held at the Federal Reserve Bank. The government can sell assets and the proceeds would go into the TGA. In theory, they could pledge the gold as collateral for a loan or physically lend the gold in exchange for electronic dollars. (The U.S. Treasury once lent 14,700 tons of silver to the Manhattan Project). The Treasury Department could also issue its own currency notes, but under current law it's limited to a paltry 300 million dollars. The President may be able to fire managers of the Federal Reserve and replace them with managers who would create money for him out of thin air, but the legality of such firing would have to be decided by the Supreme Court. Neither of the last two actions requires involving gold at all.

An economist explains it here:

Treasury is allowed to pledge its holdings of physical gold to the Fed in exchange for cash. The proposal, which was also floated in 2023, centers around the idea that the government should revalue gold reserves from the $42.22 per ounce — the legacy Bretton Woods price — to market value. That would put the collateral value of the Treasury’s gold reserves at roughly $750 billion, up from about $11 billion, according to Wrightson ICAP.

The increase in Treasury’s account at the Fed means that the department could spend this amount without the need to issue as many bills, according to Barclays Plc. Strategist Joseph Abate said in a note to clients on Tuesday it would reduce bill supply by about 12% and push the date at which the government exhausts its borrowing authority — or X-date — past February 2026 from current forecast of around August 2025.

For the Fed, though, this price adjustment would cause the gold certificate account on the asset side of its balance sheet to rise, and simultaneously increase the amount of cash in the Treasury General Account, or TGA, on the liability side of the ledger on day one, Wrightson ICAP economist Lou Crandall wrote in a note to clients on Monday.

“From a narrow balance sheet perspective, this would be the functional equivalent of a new round of quantitative easing,” Crandall said. “Over time, cash would flow out of the TGA and into bank reserve accounts as Treasury spent the proceeds.”

While any plan for the US government to monetize its assets is speculative at this point, a revaluation of gold holdings would also run counter to the Fed’s ongoing policy of reducing its balance sheet, a process known as quantitative tightening, which started in June 2022.

https://finance.yahoo.com/news/gold-revaluation-risks-messy-outcome-181642849.html

 

[Individualist]

Just speculating…

Many retail investors will not understand or seek to understand the government’s intent and paper impact of the revaluation. They will read the headlines and react or not.

Revaluing the gold will have a psychological effect from the action itself and the increased visibility to a world-wide audience, not just in the US.

It could help establish a new psychological baseline price at a high level that will provide trading support going forward.

The increased attention should bring new retail players into the market, along with speculators and panic buyers who may spur buying momentum at least in the short-term.

When more is understood and the corrections come (and they will), that new support floor should help keep long-term prices healthy.

 

[richc]

I think @Varmint is responsible for this...

 

[richc]

An economist explains it here:

Treasury is allowed to pledge its holdings of physical gold to the Fed in exchange for cash. The proposal, which was also floated in 2023, centers around the idea that the government should revalue gold reserves from the $42.22 per ounce — the legacy Bretton Woods price — to market value. That would put the collateral value of the Treasury’s gold reserves at roughly $750 billion, up from about $11 billion, according to Wrightson ICAP.

The increase in Treasury’s account at the Fed means that the department could spend this amount without the need to issue as many bills, according to Barclays Plc. Strategist Joseph Abate said in a note to clients on Tuesday it would reduce bill supply by about 12% and push the date at which the government exhausts its borrowing authority — or X-date — past February 2026 from current forecast of around August 2025.

For the Fed, though, this price adjustment would cause the gold certificate account on the asset side of its balance sheet to rise, and simultaneously increase the amount of cash in the Treasury General Account, or TGA, on the liability side of the ledger on day one, Wrightson ICAP economist Lou Crandall wrote in a note to clients on Monday.

“From a narrow balance sheet perspective, this would be the functional equivalent of a new round of quantitative easing,” Crandall said. “Over time, cash would flow out of the TGA and into bank reserve accounts as Treasury spent the proceeds.”

While any plan for the US government to monetize its assets is speculative at this point, a revaluation of gold holdings would also run counter to the Fed’s ongoing policy of reducing its balance sheet, a process known as quantitative tightening, which started in June 2022.

https://finance.yahoo.com/news/gold-revaluation-risks-messy-outcome-181642849.html

All the while driving inflation higher...

 

[richc]

OK, @Varmint, you can stop anytime now...

 

[DJBrad]

All @Varmint fault

 

[Parker Schreiber]

An economist explains it here:

Treasury is allowed to pledge its holdings of physical gold to the Fed in exchange for cash.

That's exactly what I said. "In theory, they could pledge the gold as collateral for a loan or physically lend the gold in exchange for electronic dollars."