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'Weird Gold Trick' -- Revaluation -- May Not Be so Weird after All

Dear Friend of GATA and Gold:

In his commentary yesterday at the Daily Reckoning, author and market analyst James G. Rickards described the "weird gold trick" by which the U.S. Treasury could conjure $500 billion from the Federal Reserve to help avert a debt ceiling shutdown. The "trick": is gold revaluation, official repricing of the U.S. gold reserve of 8,133 tonnes from the antique valuation of $42.22 per ounce to a market price of more than $2,000 per ounce.

Of course $500 billion might not buy the U.S. government more than a few weeks of pretend solvency against a shutdown imposed by the debt ceiling, but Rickards points out that the government has used gold revaluation in a pinch twice before.

That is, the "weird gold trick" really isn't so weird. It has been suggested by some serious economists as a mechanism for devaluing currencies and government and private debt to avert a catastrophic debt deflation. Their speculations have been called to your attention many times over the years:

The power of gold to change all financial valuations in the world was acknowledged in detail in a meeting at the U.S. State Department between Secretary of State Henry Kissinger and his deputy, Thomas O. Enders, in 1974:

Indeed, during an interview with Business News Network in Canada in 2008, a former governor of the Federal Reserve Board, Lyle Gramley, raised the possibility of using the "weird gold trick" to reliquefy the Fed as it started to look like a big hedge fund:

Back then Gramley likely wasn't the only Federal Reseve or Treasury Department official to be aware of the power of the government's golden asset. Given the heavy secrecy still enforced by the Fed and Treasury about the government's involvement with gold, other government officials today are almost certainly aware of that power too.

So are central bank and government officials in other countries. They know the power of not just the U.S. gold reserve but their own gold reserves. They sometimes have discussed this power in public, as those who follow GATA know.

Rickards writes that he doesn't think the U.S. government will resort to the "weird gold trick" again. But the recent vast shift in the posture of central banks from net gold sellers to net buyers suggests that other countries may have gold tricks up their sleeve.

Rickards' analysis is headlined "'Weird Gold Trick' Could End Debt Ceiling Showdown" and it's posted at the Daily Reckoning here: 

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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