$42 Gold

By Contributing Editor Doug Hornig

Paydirt editor Doug Hornig addresses exactly how a revaluation of gold could take place. There are already hints from the Fed itself, and the benefits to the government are many. What would happen to the gold price? And to gold stocks? Doug shows how a gold revaluation would make a lot of sense…

Ok, right up front, I do not know of a secret place where you can buy gold for one cent on the dollar. Sorry. But I’ll come back to that $42 number in a moment.

The gold price, which went flat in late October, has lately turned north again, adding $160, or about 4%, since November 20—as I write on December 2. The miners have more than kept pace, with the large-cap GDX rising 10.5% over the same period and the small-cap GDXJ vaulting higher by more than 13.5%.

Granted it’s a very short-term sample size, and by the time you read this, prices may have fallen back. But these are big moves. Is it just an anomaly? Or are we beginning the next leg up after the ongoing bull market in precious metals took a breather?

Or … might something be afoot behind the scenes that insiders know about—and we don’t? Like, say, a revaluation?

A Fed Leak?

What follows is speculative. But not entirely. There are hints, and recently one came from the Federal Reserve.

If you’re like me, you pay little or no attention to what the Fed says, since it has missed every major economic trend in recent history. Nevertheless, I couldn’t help but be intrigued by a paper—entitled, Official Reserve Revaluations: The International Experience. It was written by staff economist Dr. Colin Weiss and issued by the Board of Governors on August 1, 2025. The initial paragraph tells the story:

• “With public debt at high levels, some governments have begun to explore financing additional expenditures without raising taxes while also not increasing public debt outstanding. One possibility is using proceeds from valuation gains on gold reserves, as has been floated in the U.S. and Belgium recently. For the U.S., this would involve revaluing the government’s 261.5 million troy ounces in gold reserves—the largest gold reserves globally— from a statutory price of $42.22 per troy ounce to current market prices, which stand around $3300 per troy ounce.” [The price is almost 1/3 higher since then.]

Weiss doesn’t specify exactly where the idea has been “floated.” But this paper is evidence it’s been talked about at least within the Fed. And probably inside the Treasury Dept.

But first, some background.

Fixing the Gold Price

As many of you know, in 1973, after Nixon severed the last connections of the US dollar to gold, the “official” price was set at $42.22/ounce. And there it has stayed. Government gold reserves are held by the Treasury at Fort Knox and elsewhere. They currently amount to 261 million ounces, with a “book value” of a bit over $11 billion. Any coins legally produced by the U.S. Mint aren’t added to the cache and must use gold from current domestic production, not the reserves.

Given a market price of around $4,200 (at this writing), our reserves have now passed the $1 trillion point in market value. So, revaluation must seem like a tasty alternative. The real question is probably, why wouldn’t they? It’s not simple, but it’s doable.

Here’s How the System Works…

Treasury owns the physical gold. At the same time, the Fed maintains a Gold Certificate Account, in which are deposited paper shares exactly equivalent to Treasury’s holdings, at the book value. The Secretary of the Treasury is authorized to issue gold certificates against the Treasury’s gold, with—and this is important—the value of outstanding certificates not to exceed the value of the gold held against them.

Years go by and nothing changes. The Gold Certificate Account is just a line item on the Federal Reserve’s balance sheet, an accounting IOU the Fed holds as part of its assets. The Fed cannot redeem these for gold, or adjust the value.

Revaluation is not unprecedented in American history. FDR did it in 1933. He needed money to finance his depression-fighting social programs, but was constrained by the gold standard then in place. So he pulled off a switcheroo. He banned private ownership of gold and required Americans to convert any metal they owned into currency at a rate of $20.67/oz. After that, he revalued gold to $35/oz., forcing citizens to take a 40% haircut while giving the government instant access to an influx of new capital.

But that was then. Can the President or Treasury Secretary unilaterally declare a revaluation today? Technically, no. That power is vested in Congress, which set the price and the rules by statute in 1973. Only an act of Congress can make changes.

At least in theory. However, the current president has a penchant for issuing executive orders meant to achieve his goals, regardless of whether they require Congress’s approval. If he desired to revalue government gold by decree, he could declare that it was a matter of national security, and cite congressional workarounds developed for him by his legal staff. It might work.

Or, of course, he could direct Congress to pass legislation giving him this power, and it could quickly comply.

What’s the Procedure?

Here’s what happens in an actual revaluation, however conducted. This will take us a bit deep into the weeds, but bear with me, I can keep it simple…

The present gold certificates are extinguished. Treasury revalues gold to the new price and records “revaluation gains” in a capital surplus account. They sit on its books as equity, not cash. Treasury issues new gold certificates to the Fed equal to the book value of the gold that backs them at the new statutory price. These go into the Fed’s Gold Certificate Account (tacitly strengthening its own balance sheet). So far, the whole thing is just shifting numbers around. Nothing has really changed.

However, Treasury is unlikely to do this just to let that equity sit there. It will want to monetize it. So, it transfers the capital surplus to the Fed, which by law is compelled to accept it. Mission accomplished.

In return, the Fed “pays” for the transfer by creating an equivalent amount of new reserves and puts them into the Treasury General Account. This is base money that the Fed just conjures into existence from thin air.

It’s now cash that’s spendable, however Treasury wants. The net result is kind of like the money creation induced by QE, absent the government incurring any further debt.

This can be sold as something done “for the public good,” because it’s designed to boost the economy without any new taxation or borrowing.

The Endgame

Now, why revalue the gold at this time?

For one thing, the new cash could tend to devalue the dollar. That’s one of the administration’s aims, in order to stimulate exports.

However, the real key may be that Donald Trump yearns to create a U.S. sovereign wealth fund (SWF). In a 2024 speech, he said such a fund could generate a “gigantic profit” that might help “pay down the national debt.” In February of 2025, just a couple of weeks after his inauguration, Trump signed an executive order directing the Departments of the Treasury and Commerce to develop plans for an SWF, including “recommendations for funding mechanisms, investment strategies, fund structure, and a governance model.”

But how to seed it? It’s pretty counterproductive to go into further debt to do it. And tariff revenues don’t seem adequate. Thus, to date, nothing has come of the wealth fund order.

And that’s where the allure of a revaluation comes in. A trillion in new currency would be highly inflationary if released into the economy through normal banking procedures. But if placed into an SWF, the money would be used to buy assets, like stocks and Bitcoin, that are expected to appreciate in value. Profits could be held, reinvested, used to help pay down the debt, whatever. Any inflation, at the consumer level, would be minimal—or at least long delayed.

The public isn’t hurt. It’s a win-win.

For his part, Treasury Secretary Scott Bessent has flatly denied the administration plans to proceed in that direction. Again if you’re like me, you tend to believe that when a government official strongly insists that something isn’t happening, it probably is. And Bessent has also said, “We’re going to monetize the asset side of the U.S. balance sheet for the American people,” which leaves that door rather widely ajar.

And What If….?

So … what if the government’s gold were revalued to, say, $4500/oz. (Or, since it’s more or less accounting trickery, they could peg it to $5,000, or $10,000, or whatever price they wanted—dependent only upon two considerations, how much capital they seek to create and their assessment of possible global side effects.) What would be the consequences?

We can’t be certain, but in my opinion, highly bullish for gold would be the way to bet.

While it wouldn’t signal a return to a true gold standard, it would place a de facto floor under the gold price. Not a literal floor—unless the government began buying physical gold (which it might). But it would announce that the U.S. is implicitly pricing gold into its monetary base, and that the issuer of the world’s reserve currency is anchoring its balance sheet to gold. The yellow metal becomes important again.

Other central banks would follow the U.S. lead and stockpile more gold. (They’ve been buying a lot in recent years, so perhaps they already know something we don’t.)

The retail gold market would benefit too, if it perceives a message that the U.S. would be prepared to support gold at the new official price, limiting investors’ downside. Gold would be in everyday conversations. New investors would be driven to jump on board. Banks would be incentivized to acquire gold-linked reserves. Any drops in market price would tend to be smaller and shorter, as both individuals and institutions buy the dips. And who knows what else?

All good.

As I said at the beginning, gold and gold stocks are on the move. I grant that, most likely, it’s a reflection of positive market sentiment on the fundamentals.

But maybe, just maybe, they’re about to get a jolt from an entirely different direction.

And that would ignite the gold stocks, since they’re leveraged to the gold price. We’re long mining equities because either way it’s a bull market and we see big gains ahead for them. You can invest right alongside us—check out the gains we’ve already had this year in Paydirt Prospector. In our opinion this is the time to be fully invested.