[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
INVESTIGATING THE GOLD: H.R. 1495,
THE GOLD RESERVE TRANSPARENCY ACT
OF 2011 AND THE OVERSIGHT OF
UNITED STATES GOLD HOLDINGS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
DOMESTIC MONETARY POLICY
AND TECHNOLOGY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
JUNE 23, 2011
__________
Printed for the use of the Committee on Financial Services
Serial No. 112-41
_____
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HOUSE COMMITTEE ON FINANCIAL SERVICES
SPENCER BACHUS, Alabama, Chairman
JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts,
Chairman Ranking Member
PETER T. KING, New York MAXINE WATERS, California
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois BRAD SHERMAN, California
GARY G. MILLER, California GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California JOE BACA, California
MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan BRAD MILLER, North Carolina
KEVIN McCARTHY, California DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico AL GREEN, Texas
BILL POSEY, Florida EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK, GWEN MOORE, Wisconsin
Pennsylvania KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO R. CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee
Larry C. Lavender, Chief of Staff
Subcommittee on Domestic Monetary Policy and Technology
RON PAUL, Texas, Chairman
WALTER B. JONES, North Carolina, WM. LACY CLAY, Missouri, Ranking
Vice Chairman Member
FRANK D. LUCAS, Oklahoma CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina GREGORY W. MEEKS, New York
BLAINE LUETKEMEYER, Missouri AL GREEN, Texas
BILL HUIZENGA, Michigan EMANUEL CLEAVER, Missouri
NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan
DAVID SCHWEIKERT, Arizona
C O N T E N T S
----------
Page
Hearing held on:
June 23, 2011................................................ 1
Appendix:
June 23, 2011................................................ 23
WITNESSES
Thursday, June 23, 2011
Engel, Gary T., Director, Financial Management and Assurance,
U.S. Government Accountability Office (GAO).................... 5
Thorson, Hon. Eric M., Inspector General, U.S. Department of the
Treasury....................................................... 3
APPENDIX
Prepared statements:
Paul, Hon. Ron, including a statement and attachment from the
United States Mint......................................... 24
Engel, Gary T................................................ 30
Thorson, Hon. Eric M......................................... 42
Additional Material Submitted for the Record
Thorson, Hon. Eric M.:
Written responses to questions submitted by Chairman Paul.... 54
Written responses to questions submitted by Chairman Paul and
Representative Luetkemeyer................................. 60
Attachment 1: Gold Assay Reports......................... 62
Attachment 2: U.S. Mint's Custodial Gold: List of Bars
Assayed................................................ 117
Attachment 3: List of Audits of U.S. Gold Holdings....... 125
Attachment 4: Mint's Schedule of Inventory of Deep
Storage Gold Reserves.................................. 127
Attachment 5: FRBNY Schedule of Inventory of Gold Held... 128
INVESTIGATING THE GOLD: H.R. 1495,
THE GOLD RESERVE TRANSPARENCY ACT
OF 2011 AND THE OVERSIGHT OF
UNITED STATES GOLD HOLDINGS
----------
Thursday, June 23, 2011
U.S. House of Representatives,
Subcommittee on Domestic Monetary
Policy and Technology,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 9:31 a.m., in
room 2128, Rayburn House Office Building, Hon. Ron Paul
[chairman of the subcommittee] presiding.
Members present: Representatives Paul, Jones, Luetkemeyer,
Huizenga, Schweikert; Clay, Maloney, and Green.
Chairman Paul. This hearing will come to order. Without
objection, all members' opening statements will be made a part
of the record.
I will start with my opening statement and proceed to
anybody else who is anxious to do the same.
For far too long, the United States Government has been
less than transparent in releasing information relating to its
gold holdings. Not surprisingly, this secrecy has given rise to
a number of theories about the gold at Fort Knox and other
depositories.
Some people speculate that the gold has been involved in
gold swaps with foreign governments or bullion banks. Others
believe that the gold has been secretly shipped out of Fort
Knox and sold. And, still others believe that the bars at Fort
Knox are actually gold-plated tungsten.
Historically, the Treasury and the Mint have dismissed
these theories rather than addressing these concerns with
substantive rebuttals. No one from Congress has been allowed to
view the gold at Fort Knox in nearly 40 years. Recent
photographs of gold holdings seem to be hard to come by. And
the Mint and the Inspector General's audit statements contain
only the bare minimum of information.
Because the Government has for so long refused to provide
substantive information on its gold holdings, it is not
surprising that so much confusion abounds, both within and
without the Government.
The difference between custody and ownership, questions
about the responsibility for U.S. gold held at the New York
Fed, and that issue of which division at Treasury is ultimately
responsible for the gold reserves are just some of the
questions that have come up during the research for this
hearing. In a way, it seems as though someone decided to lock
up the gold, put the key in a desk somewhere, and walk off
without telling anyone anything.
Only during the preparation for this hearing was my office
informed that the Mint has in fact conducted assays of
statistically representative samples of gold bars, and we were
provided with a sample assay report.
This type of information should be reported, or at least
tabulated and published, so that the public knows exactly how
many bars of gold exist, what their fineness is, and whether
they are encumbered in any way through loans or swaps.
While the various agencies concerned have been very
accommodating to my staff in attempting to shed some light on
this issue, it should not require the introduction of
legislation or a congressional hearing to gain access to this
information. This information should be published and available
to the American people.
This gold belongs to the people, especially since much of
it was forcibly taken from them in the 1930s, and the
Government owes it to the people to provide them with the
details of these holdings.
We would greatly benefit from a full, accurate inventory
audit and assay with detailed explanations of who owns the gold
and who is responsible for ownership, custody, and auditing.
While the Mint and the Inspector General trust the accuracy
of the audits performed between 1975 and 1986, this still means
that at least two-thirds of the gold reserves were last audited
over a quarter century ago. Surely, a full audit every 25 years
is not too much to ask.
I look forward to the testimony of the witnesses regarding
the conditions of the gold reserves, the accounting audits that
are regularly performed, and the inventories and assays that
have been conducted on some of this gold over the years.
I am also very interested to hear the comments on the Gold
Reserve Transparency Act, so that we may put forward a measure
that provides the public with accurate and complete information
on their gold.
I yield back the remaining time of my 5 minutes, and yield
to Mr. Clay for his 5 minutes.
Mr. Clay. Thank you, Mr. Chairman. And thank you for
holding this hearing, entitled, ``Investigating the Gold: H.R.
1495, the Gold Reserve Transparency Act of 2011 and the
Oversight of United States Gold Holdings.''
I, too, look forward to the witnesses' testimony.
And I also noted that in the Treasury Inspector General's
written testimony, he wrote that the IG is required by law to
perform an annual audit of the Mint public enterprise fund's
financial statements. And those statements include the balance
of custodial deep storage gold reserve held by the Mint.
It seems as though there is already an annual audit that
both the IG and the GA believe is required of them.
However, Mr. Chairman, one other suggestion is perhaps we,
as a subcommittee, may consider taking a tour of Fort Knox and
the other place or places that house the gold and really
witness for ourselves if it is going--I don't know if that
would be enough to determine if the gold is authentic.
But, it may be something for the committee to consider. So
I look forward to the witnesses' testimony. And, again, I thank
the chairman.
Chairman Paul. I thank the gentleman. I also thank the
gentleman for his suggestion. I think it is a good idea to go
and at least show our interest. But I personally would feel
like I would have shortcomings on looking at a bar and knowing
exactly what I was looking at. But there is no reason why we
can't at least consider that as a starting point.
Would any other member like to make an opening statement?
Okay. I will proceed to the witnesses.
I would like introduce our two witnesses. Mr. Gary Engel is
the Director of Financial Management and Assurance at the
Government Accounting Office. He directs GAO's annual audit of
the U.S. Government's consolidated financial statements, as
well as audits of key financial statements at the Department of
the Treasury.
And I want to welcome Mr. Engel, as well as the honorable
Eric M. Thorson, who has been the Inspector General of the
Department of the Treasury since 2008. He manages oversight of
the Treasury through independent audits, investigations, and
review.
And we will go ahead and proceed with the testimony of Mr.
Thorson.
STATEMENT OF THE HONORABLE ERIC M. THORSON, INSPECTOR GENERAL,
U.S. DEPARTMENT OF THE TREASURY
Mr. Thorson. I thank you for the opportunity to appear
before you this afternoon.
My testimony will cover the audits done by my office on the
United States Mint's Schedule of Custodial Deep Storage Gold
Reserves. Hereafter, I will mostly refer to them simply as the
gold reserves.
Before I discuss the details of the audits that are the
topic of this hearing, I want to make one point very clear: 100
percent of the U.S. Government's gold reserves in the custody
of the Mint has been inventoried and audited. Furthermore,
these audits found no exceptions of any consequence.
I also want to assure you that the physical security over
the gold reserves is absolute. I can say that without any
hesitation, because I have observed the gold and the security
of the gold reserves myself.
Accordingly, the requirements of H.R. 1495, which calls for
a full assay, inventory, and audit of gold reserves of the
United States, together with an analysis of the sufficiency of
the measures taken for the security of such reserves, is
redundant of audit work already done.
Since 1993, my office has performed annual audits of the
Government's deep storage gold reserves held by the Mint. In
fact, our Fiscal Year 2011 audit of the gold reserves is
currently under way.
My testimony today will briefly describe what the Mint gold
reserves include, and the annual audits performed by my office
since 1993.
The Mint maintains its storage gold reserves in three
highly secure locations: Fort Knox, Kentucky; West Point, New
York; and Denver, Colorado. While it would be inappropriate for
me to discuss the details of the security arrangements in place
at these facilities, I can tell you that they are multilayered
and include substantial physical barriers, armed guards,
cameras, and metal detectors.
In all, 42 compartments at these 3 hardened facilities hold
699,515 gold bars with a fineness or purity ranging from 0.47
to 0.9999, with an average fineness of 0.9006.
As of September 30, 2010, the audited quantity of the gold
reserves held by the Mint was over 245 million fine troy
ounces, weighing over 9,300 tons, with a market value of $320.6
billion. I might add that each gold bar weighs about 27 pounds
and has an average value of about $0.5 million.
In June 1975, the Treasury Secretary authorized and
directed a continuing audit of U.S. Government-owned gold for
which Treasury is accountable. Pursuant to that order, the
Committee for Continuing Audit of the U.S. Government-owned
Gold performed annual audits of Treasury's gold reserves from
1975 to 1986, placing all inventoried gold that it observed and
tested under an official joint seal.
The committee was made up of staff from Treasury, the Mint,
and the Federal Reserve Bank of New York. The annual audits by
the committee ended in 1986 after 97 percent of the Government-
owned gold held by the Mint had been audited and placed under
official joint seal.
It should be noted that during the entire period of these
audits and up to today, no discrepancies of any consequence
have ever been found.
This is an example of the seal--and I have put pictures of
these in my testimony. This is an actual seal that came off one
of the compartments.
My office began conducting annual audits of the gold
reserves in Fiscal Year 1993. Since 2005, these audits have
supported the annual audits of the Treasury Department's
consolidated financial statements, which incorporate the
balances of the gold reserves held by the Mint.
The financial statement audit is performed by KPMG under
contract with my office. KPMG has relied on our audits of the
gold reserves when rendering its opinions on the Mint's and
Treasury's financial statements. They have assured themselves
as to the independence, reputation, and qualifications of my
audit staff.
In addition, they have satisfied themselves with the
adequacy of the audit procedures performed. The audit work
performed by both my office and KPMG is done in accordance with
Government auditing standards established by the GAO.
Since 1993, when we assumed responsibility for the audit,
my office has continued to directly observe the inventory and
test the gold. In fact, my auditors signed the official joint
seals--such as the one I showed you--placed on those
compartments, inventoried and tested in their presence.
At the end of Fiscal Year of 2008, all 42 compartments had
been audited by either the GAO, the Committee for Continuing
Audit of the U.S. Government-owned Gold, or my office, and
placed under official joint seals. There has not been any
movement of inventoried gold since that time.
Furthermore, in addition to observing the inventory of the
gold for all of the audit periods, we selected and tested a
statistically valid random sample of gold bars using a 95
percent confidence level. We found, without fail, that any
differences between the fineness reported by the Mint and the
fineness based on our independently obtained assay reports were
immaterial and negligible.
For example, during our Fiscal Year 2008 audit, we sampled
gold valued at $75 million. Based on the independent assay of
those samples, we projected the dollar value of the difference,
based on the assay report and the Mint's inventory records, to
be $3,820, or 0.005 of 1 percent of the gold inventory.
As discussed earlier, by the end of Fiscal Year 2008, all
of the gold reserves in the Mint's custody had been 100 percent
inventoried and audited.
In closing, based on the work performed by my office and by
my own personal observations, I can assure the subcommittee
and, as you said, sir, the American people, that both the
quantities and the value of the U.S. Government's deep storage
gold reserves held and reported by the Mint are reliable and
fully audited. I mentioned the American people because, as you
said, sir, they own this gold.
The reason we go through all of the procedures that I just
mentioned is to give the American people the absolute
confidence that the gold reserves are as represented. Fort
Knox, for instance, isn't just a huge stockpile of gold. It is
also a symbol of the stability and financial soundness of their
Government.
To create doubt about the value or the security or even the
very presence of the gold reserves without reason contributes
to the distrust in Government that seems to be a growing trend
today.
It is the obligation of every Inspector General to report
to the Congress, and to the public, areas of concern that need
to be fixed. But I believe it is also my obligation to report
to you when something is being done right, and that is the case
here today.
That concludes my statement.
[The prepared statement of Inspector General Thorson can be
found on page 42 of the appendix.]
Chairman Paul. I thank the gentleman, and we will proceed
with Mr. Engel.
STATEMENT OF GARY T. ENGEL, DIRECTOR, FINANCIAL MANAGEMENT AND
ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE (GAO)
Mr. Engel. Thank you, Mr. Chairman, Ranking Member Clay,
and other members of the subcommittee. I am pleased to be here
today to discuss H.R. 1495, the Gold Reserve Transparency Act
of 2011.
As of September 30, 2010, about 95 percent of the reported
U.S. gold reserves were in the custody of the Mint, of which
nearly all is deep storage gold. The remaining U.S. gold
reserves were in the custody of the Federal Reserve Bank of New
York.
In 1974, in response to congressional interest and in
conjunction with the Mint, GAO assisted in the planning and
observed the inventory of U.S. gold reserves in the depository
at Fort Knox. GAO selected and audited 3 of the 13 compartments
at that depository.
As part of this audit, GAO recommended that a cyclical
inventory of the gold in Mint custody be performed annually to
ensure that the gold in all compartments would be inventoried
over a specified period of years.
Acting on this recommendation, in 1975 Treasury established
the Committee for Continuing Audit of the U.S. Government-owned
Gold. Treasury OIG officials estimate that about 92 percent of
the U.S. gold reserves have been audited by either GAO or the
Committee for Continuing Audit as of September 30, 1986. Of
this percent, GAO's audit in 1974 represented about 13 percent.
More recently, the U.S. gold reserves have been presented
in various financial reports and have therefore been subject to
various audit efforts. For example, since issuing its audit
report covering the Mint's custodial schedule for Fiscal Year
1993, the Treasury OIG has annually audited the deep storage
gold reserves in the custody of the Mint.
For each of the fiscal years under audit, the Treasury OIG
has issued a clean opinion on the Mint's custodial schedules.
Also, the Treasury OIG did not report any material weaknesses
in internal control over financial reporting relating to these
schedules for those fiscal years.
H.R. 1495 provides for the Secretary of the Treasury to
conduct and complete a full assay, inventory, and audit of the
U.S. gold reserves, and an analysis of the sufficiency of the
measures taken for the security of such reserves. In
considering the provisions of H.R. 1495, it will be important
to consider the cost, benefit, and timing of actions needed to
implement the proposed requirements.
H.R. 1495, if enacted, may result in duplication of certain
past and current efforts. Nevertheless, GAO would be capable of
reviewing the results of Treasury's actions as called for in
the bill, should it be enacted. GAO's review would include
visits to the facilities where the gold reserves are held to
selectively observe the inventorying and the auditing of the
gold. We would also examine various documentation supporting
the required assay, inventory, and audit.
H.R. 1495 also provides for GAO to transmit to the Congress
not later than 9 months after enactment of the Act a report of
GAO's findings from such review and the results of Treasury's
efforts. According to Treasury officials, because of the
enormous quantity of gold that would need to be inventoried and
assayed, it is unclear whether Treasury can complete such
actions within the 6-month period provided for in H.R. 1495.
If Treasury's efforts are not completed within this period,
there would be limitations on the scope of GAO's work if GAO
were still to be required to report out within the 9-month
period.
GAO stands ready to work with the subcommittee on
developing changes to the provisions of H.R. 1495 that would
most efficiently utilize the results of past and current gold
reserve assay, inventory, and audit efforts.
Mr. Chairman, and Ranking Member Clay, this concludes my
prepared remarks. I would be pleased to answer any questions
that you may have.
[The prepared statement of Mr. Engel can be found on page
30 of the appendix.]
Chairman Paul. I thank the gentleman.
I will start off with yielding 5 minutes to myself for
questions. I wanted to ask both of you this question. It has to
do with what is happening in New York, because that has been a
little more difficult to understand.
There is a lot of uncertainty surrounding who has
responsibility of the gold reserves held at the New York Fed.
You did mention it in your testimony, but conversations with
the Mint and the Office of the Inspector General, the main
Treasury and the New York Fed, have all resulted in one or the
other of these entities saying to check with the other, so we
never got a full answer.
The OIG has stated that it does receive financial
statements from the New York Fed attesting to the gold held in
storage there for purposes of their financial statement audits.
However, there seems to be no definite answer as to who has the
responsibility for the New York Fed gold, and no one seems to
know the last time it was assayed or inventoried.
A common rejoinder has been that it is just a small part of
the gold reserves; it is only 5 percent. But when you look at
the total amount of gold we have, 5 percent is pretty
significant, because it is more than 13 million ounces of gold.
And at $1,500 an ounce, we are talking about $20 billion that
seems to be floating around out there and we just really can't
pin it down. I know we are used to talking in trillions, but
this just seems like poor governance.
Could either of you comment on the New York Fed-held gold,
whether it has been assayed or inventoried, and whether it
deserves to be thoroughly examined, as the legislation calls
for?
Mr. Engel. My understanding is that the gold reserves in
the Federal Reserve Bank of New York have not been assayed.
That is just based upon my reading of reports, not from work
that GAO has done. But it is also my understanding from reading
a Treasury OIG report from back in 1987, that pretty much 99.9
percent of the gold reserves that were in the Federal Reserve
Bank of New York at that time--and I think that the amounts of
fine troy ounces, when I looked, has not really changed to what
it is now--were being audited over periods of time by the
Federal Reserve examiners, and that those inventories had been
observed by members of the Committee for Continuing Audit that
we spoke of earlier.
Because it had not been assayed and because it is not under
the control of that committee, they have not considered that as
audited. But, there have apparently been inventories of it, and
there have been observations of that inventory. The last report
that I saw that said that was from back in 1986. So, I don't
know what has been done since then.
Chairman Paul. Thank you.
Mr. Thorson?
Mr. Thorson. You are correct that we don't audit that. It
is done by a third-party confirmation, which is an accepted
practice under audit. But it is the Treasury's gold--5 percent
of it is there and it is really at this point is immaterial to
the statement and the total numbers.
Chairman Paul. It is immaterial?
Mr. Thorson. As an auditing term, I mean. It is not
included in what we listed in the statements.
Chairman Paul. But it is a relevant amount of gold,
obviously?
Mr. Thorson. Right.
Chairman Paul. Since this is held at the New York Fed, and
the New York Fed is obviously very much involved in
international arrangements during the financial crisis,
essentially every single transaction to the tune of trillions
of dollars that they transacted involved foreign central banks.
And over the last decade or two, central banks have been very
much involved in gold swaps and loaning gold and selling gold.
And to date, of course, we have no evidence that our
Government has ever been involved. But it seems to me that if
there was ever one place where they might have gotten involved,
since the New York Fed is involved in international
transactions with--you probably don't have the answer on
whether or not they did or did not--but could it be conceivable
that they could have done it without your knowledge?
Mr. Thorson. I don't believe so, no. And as far as any
encumbrances other than the gold certificates that are held by
the Fed, we did ask that question before coming here. What I
was told was as far as encumbrances, ``Not one troy ounce is
encumbered.''
Chairman Paul. Okay.
I yield back, and now I yield 5 minutes to Mr. Clay.
Mr. Clay. Again, thank you, Mr. Chairman, for conducting
this hearing. And let me thank both witnesses for your
testimony today.
According to the U.S. Mint, which is the custodian of
nearly 95 percent of America's gold reserves, the time required
to move, weigh, assay, and re-store the bars of gold averages 6
minutes per bar with a team of 19 people. Now, the Mint points
out that extrapolating that to 700,000 bars, as the legislation
requires, would require nearly 1.3 million manhours of
incremental labor.
Therefore, to complete the inventory of just the gold
bullion bars within 6 months, as this proposal specifies, would
require approximately 1,280 individuals. And we know that since
this is a domestic issue that, Mr. Chairman, your leadership
would require an offset, so we would have to find the money to
do this since this is a domestic issue, and we have to pay for
all of those things.
Would either of the witnesses view this bill as a prudent
use of taxpayer funds?
Mr. Thorson?
Mr. Thorson. The numbers that you quote are probably--just
on my unscientific judgment having been there--pretty accurate.
It is a remarkably small area. It is really surprisingly so
when you are actually standing there with the compartments. You
are going to be able to use very few people in that area. I
think you gave the figure of about 1,200 people? That is almost
laughable when you actually see the space.
So that means it is going to take a great deal longer than
what you would normally think. And if you could put 1,200
people together, have them move the bars, it is going to take a
very long time.
I, obviously, as I said in my statement, don't see the
benefit at any cost really. It is what we do; it is what we do
every year. As I said, it almost loses its effect to stand
there and actually see it all, because there is so much of it.
It is there.
Mr. Clay. Thank you for that response.
Mr. Engel, is this a good use of taxpayers' money, if this
bill becomes law?
Mr. Engel. I think, as I said in our testimony, that we
would be willing to work with the subcommittee on possibly
building off of the assays, the inventories and audits that
have already been done to address concerns that there may be
things within these vaults that are no longer there.
I agree that they have been through an audit process.
Auditors have checked these seals. But if the subcommittee
wanted to have something done there, I would think we would be
talking, rather then a full assay, maybe some sort of sampling,
if you wanted to just get a feel that nothing has happened over
the years since those vaults were sealed. But outside of that,
it seems quite a bit redundant with what has already been done.
Mr. Clay. All right.
I thank both witnesses for their responses.
And Mr. Chairman, I yield back.
Chairman Paul. I thank the gentleman.
I yield 5 minutes to Mr. Jones from North Carolina.
Mr. Jones. Mr. Chairman, thank you very much.
And Mr. Engel, it is nice to see you. I had a very pleasant
business relationship with Mr. Thorson on a number of issues.
And I thank you for always being there to be helpful.
I think the reason that I wanted to be here to listen to
the witnesses, and certainly my colleagues on both sides, is
that as a Member of Congress, one of my biggest concerns is not
so much the gold, whether it is there or not there. But it is
the Americans' distrust of all of us in Congress, quite
frankly.
And I was reading--my staff got for me this--I will read
it. It has nothing to do with this hearing, but it will lead to
something in a moment:
``The Federal Reserve Bank of New York is refusing to tell
U.S. Government investigators how much money it sent to Iraq
during the first years of the American invasion. The Iraqi
officials suggested the missing and possibly stolen funds from
that era is more than $18 billion.''
And there is Stuart Bowen--a wonderful Inspector General
who has always exposed all the lost American money--going to
the New York Fed, and they won't meet with him. And I think
that is the reason that maybe this bill has been introduced,
and maybe not. It is for other reasons as well.
But, if the American people could just regain a little bit
of confidence in Washington, whether it be an agency or the
Congress itself, it would really, I think, help the environment
of America.
And I was wondering, I was thinking when Mr. Clay was
suggesting, and Mr. Paul, the chairman, kind of agreed, does it
make any sense for there to be a congressional delegation of
five people, three people, six people, that every so often when
you do the audit--I think you said once a year, or I might have
missed that in the testimony, you may have to correct me--but
is it already in the guidelines or the statute that there would
be a couple of Representatives from the Senate and the House
who would be able to accompany the inspectors when they go to--
or the auditors, not the inspectors, the auditors?
To me, this is about--there is so much--if I could change
one thing in America and Iraq, or I--if I could control one
thing, it would be the Internet. There is more misinformation
on the internet than there is accurate information. And all
there has to be is some person who is challenged--I am going to
be careful about this--who puts on the Internet that you cannot
find the gold at Fort Knox. Then all of a sudden, thousands or
millions of people are seeing that. They are not hearing what
you are saying.
So I just wonder, if it makes any sense, if it is in your
regulations, or if it needs to be in the statute, that there
would be a team of two Senators or two Representatives who
would have the option of accompanying your inspectors to one of
the sites?
Mr. Thorson. Actually, that has happened under a situation
very similar to this one in 1974.
In September of 1974, I believe it was Congressman
Rousselot took a delegation which included, I believe, one
Senator, Senator Huddleston, and they went down with, I assume
permission probably would have come from either the Secretary
of the Treasury or the White House, and did tour the gold and
there were pictures taken and there are video clips of that.
I think that is exactly what you are describing. And it was
done in 1974. Obviously, I don't think either one of us have
any authority to say anything about such a visit. But it
certainly is something that the committee can make a request
for, because there is a precedent for having done it.
Mr. Jones. I appreciate you sharing that. And I will close
in just one second. But I think in the world we live in today,
there is such distrust that it would be I think for at least
during this deep recession that we are in, that if that could
be accomplished, it would help, I think, with the public's
trust.
Not so much that they should believe Members of Congress,
but I think that if this was an announced group meeting and
Members, then it gets some publicity, and maybe there could be
a news conference after this.
I don't know. I think there is validity in why we are
having this hearing today, and I just wanted to share those
thoughts with the panel and you, Mr. Chairman, and my
colleagues.
I yield back.
Chairman Paul. I thank the gentleman.
I now recognize Mr. Luetkemeyer from Missouri for 5
minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
In your testimony, I didn't hear any comments about the
golds that we use to mint coins. Is that held separately, or is
that not included in this report, or am I missing something?
Mr. Thorson. You said the Federal Reserve gold is separate?
Mr. Luetkemeyer. Okay, the Federal Reserve has a separate--
of gold they use to mint coins. Is that the same?
Mr. Thorson. Right. It is all part of Treasury's gold, but
it is not reported on the Mint's financial statement. It is
reported on the Treasury's consolidated financial statements.
Mr. Luetkemeyer. Okay, so they are the ones then that will
mint the coins and they don't have anything to do with the gold
that we are talking about here today?
Mr. Engel. No, there might be a misunderstanding. In the
Mint locations, they have basically two types of gold. They
have the deep storage gold, and then they have working-stock
gold. I believe what you are talking about is the working-stock
gold. Yes, there is working-stock gold that is kept in the
different Mint locations. I think at the end of last year, it
was about 3 million fine troy ounces. About 1 percent of the
total is working-stock gold. And that is the kind that is used
for minting coins, medallions, things like that.
Mr. Luetkemeyer. Okay, so is that audited as well, I
assume, as part of--
Mr. Engel. Yes, that is part of the Mint's financial
statements. That is not part of the custodial schedules, but it
is part of the Mint's financial statements.
Mr. Luetkemeyer. Okay, so how do you replenish that stock
then? Are you just using existing stock, or do you get new gold
shipments in that you use up? Or how do you continue to be able
to mint new gold coins?
Mr. Engel. I am not involved with it. But my understanding
is that they replenish that by purchasing stock, you know
purchasing from the outside--
Mr. Luetkemeyer. --just on the open market somewhere?
Mr. Engel. Yes.
Mr. Luetkemeyer. Okay. That is kind of interesting. I was
listening to the discussion here of my colleagues with regards
to the congressional review of the actual gold. And I think it
might be a good idea to do that from the standpoint of also
looking at the protection and procedures--all the stuff that
goes into it from the standpoint of, again, some reassurance
that there are adequate procedures in place for protection of
it. So it is kind of interesting to listen to that debate.
Along the same lines, with regard to the amount of gold
that we have, according to testimony in the documents that I
have been reading here, we are carrying it on our books at $41,
$42.22, I believe. Is that correct?
Mr. Engel. That is the per fine troy ounce statutory value.
Mr. Luetkemeyer. Okay. And you evaluated a while ago at
about $320 billion, is that right?
Mr. Engel. At market.
Mr. Luetkemeyer. At the current value today?
Mr. Thorson. That was September 30th of last year. And
yesterday, we pulled it up, it would be $1,552 an ounce and
$300 and--roughly--let us see, we don't have the--roughly $340
billion.
Mr. Luetkemeyer. Okay. Mr. Chairman a while ago asked the
question with regards to using and swapping it out with regards
to other things. It is not used as collateral for anything
either right now, is it, other than the gold certificates?
There is no--
Mr. Engel. I am not aware of anything--
Mr. Luetkemeyer. --in any other way--
Mr. Engel. --especially in financial statements, there is
nothing--or in the Department-wide--there is nothing disclosed
about--
Mr. Luetkemeyer. So, it is just sitting there right now,
right?
Mr. Engel. Yes, it is a reserve.
Mr. Luetkemeyer. Right, the reserve.
Mr. Thorson. Right, it is--and I would back up his
statement as far as we are not aware of anything like that.
Mr. Luetkemeyer. Okay, what would happen--there is some
discussion about going back to the gold standard. I don't know
if we have a will, or if it is a good idea, a bad idea. But if
we would, how would that change your operation?
Mr. Engel. I cannot speak to the gold standard and how it
would change--
Mr. Thorson. On the gold standard issue?
Mr. Luetkemeyer. Yes, if we went back to the gold standard,
how it will it change the operation of what you do?
Mr. Thorson. I am not sure how--
Mr. Luetkemeyer. But we have to have some more--would it be
some transactions going on with regards to how you take care of
it? Would it be that we would have to raise and lower the
amounts that we have all the time, or things like that? Or how
would we do that?
Mr. Thorson. I would have to tell you, as far as any
discussion regarding returning to the gold standard, that is--
you are really getting into a much more a policy issue. We
are--both of us, we are auditors, we will--
Mr. Luetkemeyer. Okay.
Mr. Thorson. We will certainly be able to look at any
process or procedure or plan if that ever happened. But as far
as commenting on that as a policy as to whether it is a good
idea or a bad idea, that is really out of our realm.
Mr. Luetkemeyer. Okay.
Thank you, Mr. Chairman. I appreciate the opportunity.
Chairman Paul. I thank the gentleman, and we will go on and
have a second round of questions, if you care to.
It seems that a portion of the Mint and the U.S. gold
reserves were audited in an assay between 1993 and 2008, as you
acknowledged. The Mint estimated that as much as one-third of
the gold reserves were examined during this period. The other
two-thirds, however, have not been inventoried--that is
according to my understanding--or assayed since somewhere
between 1975 and 1986. Do you think it would be worthwhile, at
least, to inventory and assay this portion of the Mint-held
gold?
Mr. Thorson. By--I forget which date it was, I believe by
1986, we--hold on just one second here, I got it.
It basically covered--by 1986, 97 percent of the
Government-owned gold held by the Mint had been audited and
placed under joint seal. So once you have done that, and that
seal remains unbroken, then I am not sure what other benefit
there would be to going back into it at that point. But by
1986, you had 97 percent was audited--
Chairman Paul. But it just seems like, it is quite a bit
different the way you described audits compared to, I think a
general understanding of audits. They don't audit small
portions over 20 and 30 years. An audit, I thought, was
supposed to be audited as quickly as possible.
Mr. Thorson. I think it is a little different. Because what
you have as opposed to, for instance, if I am auditing
inventory of a company, product goes out, product comes in, it
is replaced, etc., etc. In this case, there is no movement.
Those doors are not opened. There is nothing there that can
happen, because once those doors are sealed--and I have given
you a couple of show-and-tell examples here--it is very obvious
if those seals are ever broken. And it is not like, and as I
mentioned in a normal audit, where product is moved out and I
replace it and I move on. That is not what happens here.
There is no movement. Those doors are not opened, if they
are and a seal is broken, then those people who did--it is
replaced, the seal is put in place.
So I guess, it is hard to imagine what benefit there would
be, if in fact the seals that cover those doors are unbroken.
Chairman Paul. It just seems like it doesn't conform to my
idea of what an audit is all about. But let me go on to another
question dealing with the audits.
There has been a lot of speculation as to the condition of
the gold reserves. As I mentioned in my opening statement, it
was not until legislation was introduced and a hearing
scheduled that information surrounding assays and inventories
conducted by the Mint and the Office of the Inspector General
was forthcoming. And your offices have been very accommodating
in the process.
But it seems to me that all this information about the
activities of the Mint and the IG have been engaged with
respect to the gold reserves and the results of these
activities should be gathered together in one place and made
readily available, like it was mentioned on the Internet, maybe
we could have it available to the public? That is what my bill
proposes, assay and inventory the gold, evaluate whether it is
encumbered in any transaction by the Treasury, have the
Treasury issue a report.
The GAO independently verifies that report as Congress'
investigative arm. Could you comment on the reporting element
of the legislation, as well as the GAO's independent review?
Could you also comment on the extent to which the
information already available could be published? Can we get
the information a little easier instead of dragging it out?
If, for no other reason, for reassurance, because the
questions have been building over the years. And when you say,
``Well, but when was it fully audited?'' My understanding, a
full audit of the gold, most people give me the date 1953. So
what about the facilitating of information to give the American
people the absolute reassurance that they are asking for?
Mr. Thorson. I guess it would depend on what you wanted. We
have published all of the audit reports on our Web site, they
are public. You all asked for assay reports, which we certainly
provided. We keep them for a while.
There is really no secret about it. There was one thing, I
guess, on the press release for this hearing that kind of got
my attention when you said we were less than forthcoming, I
believe, was the term. I don't understand that, sir, to be
honest with you. We don't publish our work papers on the
Internet. I don't think any auditor does that.
But for the period which we have them, we keep them in the
normal course of events. But this is an example of a public
audit report on the gold. It is out there. And the assay
reports, I believe your staff asked for, we provided them. The
work papers, like I said, we don't normally do that. But I
don't think any auditor in America does that.
So whatever it is that we can do reasonably and under the
proper rules of auditing, we are happy to do. Because I agree,
transparency is our business. That is why we do what we do. If
there are any suggestions, we are happy to listen to them.
Chairman Paul. What we were looking for was to get--we
thought we would see a list of the bars or the assay details.
There were gross numbers, but not a list of the bars and the
precise assay results.
Mr. Thorson. Clearly, the results of them are published. I
think in my statement which is there is nothing hidden were all
in the statement. I mentioned the range of from the assay
reports, I think it was 0.6 to 0.999, something like that. That
is what the assay tells you and then we gave you an average.
So, those numbers are out there. I am not sure I understand
why there is some confusion about that.
Chairman Paul. But I think it was incomplete and there
weren't total numbers. I think we have a much smaller number in
a single report. Anyway, we might be able to work that out and
figure it out. But there is still some confusion there.
My 5 minutes is up, and I yield to Mr. Luetkemeyer for his
5 minutes
Mr. Luetkemeyer. Thank you, Mr. Chairman. I just have a
couple of follow-up questions.
What is the annual cost to store and protect our U.S.
holdings? Do you have an idea?
Mr. Thorson. The cost? I am sorry?
Mr. Luetkemeyer. The annual cost to protect and hold these
holdings?
Mr. Thorson. What it would cost to follow through on this
bill?
Mr. Luetkemeyer. No. Right now, we have the gold sitting in
Fort Knox and Denver and--
Mr. Thorson. We don't really, because we do audits--we are
doing many audits at the same time and that sort of thing, I
don't think we have really ever broken down what it costs to do
this particular--at least, what it costs my office to do this--
Mr. Luetkemeyer. Let me ask you what it costs--what is the
cost to, I guess, the Government or the Mint or whomever pays
the bill to protect the gold--
Mr. Thorson. Oh, the security.
Mr. Engel. I think that would probably be something that
the Mint would be able to tell you--what that cost is. Neither
of us I think would know that, but they would probably know
what it costs for them to maintain the facilities and the
depositories and things.
Mr. Luetkemeyer. That is not in your report? You don't go
back and check the costs for the procedures of maintaining
the--
Mr. Thorson. We are auditing the inventory of the gold, not
the--that would be a separate job and it is something that if
your committee or somebody asked us to do, we could certainly
look at that.
Mr. Luetkemeyer. All right.
Mr. Thorson. But as you can see, that is really a different
issue than how much gold is present at the locations.
Mr. Luetkemeyer. I would think protecting the gold would be
pretty important, being able to count the gold. If you don't
have it protected, you can't count what is not there if
somebody takes it from you.
Mr. Thorson. Having gone there, I have never--I am former
Air Force and been involved with everything from nuclear
weapons--seen security like I saw in that vault.
Mr. Luetkemeyer. That is great and wonderful on that. But
my question is, what does it cost us?
Okay, move on.
The IMF has the fourth largest gold reserves in the world.
And my understanding is that the members who belong to the IMF
have contributed gold to it. I guess my question is, is the
gold that we contributed, does IMF hold it, or do we maintain
it here and just pledge it to the IMF? Or do you know?
Mr. Thorson. State the last part, please, sir.
Mr. Luetkemeyer. Okay. All of the people who are members of
the IMF have contributed gold to their reserve. The United
States is a member of the IMF.
Mr. Thorson. Right.
Mr. Luetkemeyer. When we pledged this gold, did we take it
and physically move it to the IMF, or did we just have it
pledged?
Mr. Thorson. There are no encumbrances on that; there is no
reason to move it. We have been assured that there is not one
troy ounce that is encumbered; therefore--
Mr. Luetkemeyer. Okay. So we have moved the gold to the
IMF?
Mr. Thorson. The gold. The encumbrances that I am aware of,
the only ones are to gold certificates held by the Fed. And if
they were to go to the physical side of it, what you are
talking about is, if they were to redeem those gold
certificates, they would be paid in currency. They wouldn't be
paid in gold. The gold is collateral. It wouldn't be redeemed
that way.
Mr. Luetkemeyer. Okay. According to my resources here, it
says there are 261 million ounces that are reported as U.S.
Treasury-owned gold that are part of the IMF reserve. And so,
we don't hold it ourselves. The IMF holds it in their reserve,
wherever that is at? Do we count it as ours?
Mr. Thorson. Not that I know of.
Mr. Luetkemeyer. We don't count it as ours then? We count
it as the IMF count it as theirs? Or we don't--it is just sort
of an account. It is kind of like having a savings account with
another bank?
Mr. Thorson. No.
Mr. Luetkemeyer. So, it is not our gold anymore? Is it
IMF's, or is part of--is it ours as well?
Mr. Thorson. I think what you are talking about is the
three purposes the gold can be used for, and the third one is
what you are discussing, of which we are not aware of any use
in that category at all. I believe it says the third one is
consistent with the obligations of the Government and the IMF
on orderly exchange agreements and a stable system of exchange
rates, etc., made with the approval of the President, and may
deal in gold. We are not aware of any case where that is
occurring.
Mr. Luetkemeyer. You are saying we have never done this?
Mr. Thorson. It is what?
Mr. Luetkemeyer. You are saying that we have never done
this?
Mr. Thorson. Not that--
Mr. Luetkemeyer. We have never transferred--
Mr. Thorson. I am not aware of any time we have done that
and, at least, certainly not that it affects the amount or the
type of gold in the reserves--no.
I think you were talking about physically moving them back
and forth. That has not happened in recent history. Going back
all the way to, at least, we cover the 70s and more. So, no, I
don't believe it has.
Mr. Luetkemeyer. Okay. Perhaps after the hearing today, we
can get together and find out the answer to the question,
because I am kind of concerned now that we don't know whether
we have lost 261 million ounces. Either we gave it to, and have
now an account with, the IMF, or we still have it in our
possession and it is encumbered.
Mr. Thorson. We know we still have it in our possession.
Mr. Luetkemeyer. Or we still have it in our possession, or
we do not know where it is at, and it is encumbered. One or the
other.
Mr. Thorson. I can say, there has been no physical removal
of any of the gold during that time. I think what you are
asking is, ``Is there any obligation or something that would
cause that?'' In other words, ``Who owns that gold?'' is really
what you are saying, and to our understanding, that has not
occurred. And we can certainly get you a more definitive
answer.
Mr. Luetkemeyer. Okay. The information could be correct.
But it is information that I would think would be correct. So
it tells me that we would like a little more research to be
done here. Thank you very much.
Mr. Thorson. I guess my answer, to be really clear, was
that we do not believe that has occurred.
Mr. Luetkemeyer. Okay. Thank you.
Thank you, Mr. Chairman.
Chairman Paul. Thank you.
I want to follow up on that, because you may have given the
answer, but I still don't think it is very clear.
Is it possible that the gold is counted twice--once in the
IMF, and also on our balance sheet of the 261 ounces? Is the
gold at the IMF part of the 261 ounces that we claim we own?
Mr. Thorson. I don't think it is possible that it could be
counted.
Chairman Paul. So you don't--
Mr. Thorson. Do we count it twice, is it that it would
affect the statement? Is that what you are asking?
Chairman Paul. We have pledged gold to the IMF. Every
country has to put so much gold in the IMF. So, is it sitting
over here in the IMF and we no longer own it, right?
Mr. Thorson. We do not audit--obviously, we do not audit
the IMF so I can't make any comment on that.
Chairman Paul. Yes, but we are trying to figure out the
accounting procedures on whether when you go and audit the
gold, maybe you don't know that you audit and check the gold
and look at these bars, but they really have been pledged to
the IMF. Is that a possibility?
Mr. Thorson. No. I don't believe--no. I am not going to
comment on IMF or what they are doing, because we don't audit
the IMF. But the statements that I have made regarding the gold
reserves in the Mint, our Mint, our Treasury Department Mint,
that is pretty absolute.
And we know where it is. We know how much it is. And we
know that it is there and none of it has been removed to, and
nor do we believe there are any encumbrances it, other what I
mentioned by gold certificates of the Fed.
Chairman Paul. We have the certificates, the Fed holds
certificates that are called gold certificates. The Treasury
holds the material in gold. What if a law was passed and we
instructed Treasury to sell $20 billion worth of gold?
Mr. Thorson. Right.
Chairman Paul. Can we do that, or do we have to get
permission from the IMF? Maybe the encumbrance is to the
Federal Reserve; maybe they are in charge and not Treasury.
What can we do with that gold and who really owns it?
Mr. Thorson. I think you are trying to back into the same
question there, which I think if you wanted to do that, that
would be a question that would go to the Secretary of the
Treasury with consultation, I am sure, by the President, who
could do that. I don't think they're going to have to get
permission from the IMF to do that, because there is no
encumbrance on that gold, other than the gold certificates held
by the Fed.
Chairman Paul. That would change the balance sheet of the
Fed, because they count that. So, I don't know whether that
would--the Fed is pretty secret, you know. Congress doesn't
have much to say about what is going on over there. And they do
a lot of hiding. So, I am not so sure the answer could be that
helpful.
Mr. Thorson. I understand you are asking the question. I
have tried my best to reassure you that isn't the case. But, on
the other hand, remember, if somebody did try and redeem those
gold certificates--let us say, they were pledged to somebody.
They brought them forward and they wanted to redeem them. They
would be paid in currency at the statutory rate. They would not
be paid in gold. The gold is collateral. It is not the method
of payment.
So, they would receive whatever the value is of those
certificates. The gold would remain in the custody of the
United States and would no longer be collateral for those
certificates that were redeemed.
Mr. Engel. I could maybe add something to that. As it
relates to the gold certificates, the gold certificates do not
represent that the Federal Reserve has ownership of that gold.
There is a liability that is actually recorded in the financial
statements for about $11 billion that represents what Treasury
owes the Federal Reserve for those gold certificates.
Now, if we were to go to sell some of that gold, my
understanding is that Treasury would have to retire those gold
certificates. And then I think, as Mr. Thorson was saying,
there would be a reduction in the cash balance that Treasury
has over at the Federal Reserve at $42.22 per fine troy ounce
for whatever amount of the gold certificates you were
redeeming.
But there is an actual liability that is recorded currently
and has been for years on the Government's financial statements
for the amount that they owe the Federal Reserve for those gold
certificates.
Mr. Thorson. Yes. And that is what I meant by the fact that
if they were redeemed, obviously because it is a liability--if
they presented those, there is an obligation to pay those. But
it would not be paid in gold bars.
Chairman Paul. I want to go back to asking for suggesting
that we have more thorough reports in our request from you on
these reports. We did get one assay report, which was given as
an example. There were 86 bars involved and you showed the
details on what you found. But, of course, there is a lot more.
Why can't we get this list of each compartment, how many
bars, what percentage, whether it is 0.999 or 0.90, and have
the entire gold reserves that we have audited in that manner?
So we see this one report, but we are asking--since there is a
claim that all this has been audited and checked, couldn't that
be all into one report, since we only got one assay report?
Mr. Thorson. I think what you are describing is really what
the Mint does as far as--remember, the Mint inventories and
assays, we audit. And there is a difference there. What you are
asking for, I believe, really you need to direct that to the
Mint and they can probably satisfy you as to what kind of
records you are really looking for there.
Mr. Engel. The Mint should have records by bar and what the
fineness is of each of those bars. I would think they would
have records as to what has been assayed of those bars as part
of the inventorying and all of that process. But, I think they
are the ones that would have that type of detail.
Chairman Paul. All right, okay.
I see Mr. Schweikert has come in.
Are you ready to ask a question at this time?
Okay. I will go back to Mr. Luetkemeyer, if he asked all of
them.
Mr. Luetkemeyer. I just have one follow up here with regard
to the last line of questioning. The more I think about it, the
more concerned I am, because we need to know if the gold that
the United States has contributed to the IMF is still counted
as the U.S. gold reserve?
In other words, if it is, then it is an encumbered amount
of gold that we have sitting there and should be reported as
such. If it is not, it should be reported like a savings
account for an individual on their financial statement, and
should be reported then on our financial statement of our
Government as an asset sitting in the IMF.
Mr. Thorson. I think what you are saying, clearly if it was
encumbered or belonged to IMF or anyone else, that would need
to be reflected on the statement, because we are representing
that this is the Treasury's gold, and therefore, that would not
be an accurate statement if it were encumbered.
We have been assured that none of that is encumbered and,
therefore, that is the total amount. And so I guess there are a
number of theories you could put onboard as to how--
Mr. Luetkemeyer. As the auditors of our gold, you should
know whether that gold, if it is sitting in the IMF, is
reported on our balance sheet somewhere for the Government.
Mr. Thorson. And gold held by the IMF is--it would not be--
like I said, we don't audit IMF, so I am not going to try and--
Mr. Luetkemeyer. Yes, but aren't you auditing the gold?
Mr. Thorson. --guess what is going on there. But if it
were--what we do represent is the Treasury's gold, the U.S.
gold reserves, which we know where they are and they are not
held by IMF or controlled by IMF.
Mr. Luetkemeyer. Who owns what is in the IMF then?
Mr. Thorson. Who does?
Mr. Luetkemeyer. Yes, who owns the gold--that is the United
States Government's gold--who owns that then if it is sitting
in the IMF? Do we not own that?
Mr. Thorson. I want to make sure I give you an accurate
answer, so I am going to defer until I can get you the proper
answer that is absolutely accurate, because I can't give you an
answer on that off the top of my head.
Mr. Luetkemeyer. Okay. We are supposed to have 17 percent
of the IMF, and if we own 17 percent of the 90 million ounces,
that is a whole lot of money. And we need to know where it is.
Mr. Thorson. Right.
Mr. Luetkemeyer. But I certainly appreciate your
willingness to work with us to find out, number one, is it
counted among our reserves and we are not aware of it. And if
we are not--out there--and if it is not, where does it appear
on our balance sheet as an asset to the United States
Government.
Mr. Thorson. You asked a good question and that is why I
said I don't want to give you an answer off the top of my head.
I want a real answer.
Mr. Luetkemeyer. I want to work with you to find out and
make sure where it is at.
Mr. Thorson. And I will get you one.
Mr. Luetkemeyer. I appreciate it.
I yield back. Thank you, Mr. Chairman.
Chairman Paul. I thank the gentleman.
Mrs. Maloney?
Mrs. Maloney. Welcome.
And thank you for this hearing, Mr. Chairman.
I would like to ask both of the witnesses whether you
believe this is a good use of your resources and funds,
especially if it is true, as you testified, that it is
duplicative of what you already have to do with respect to gold
reserves.
And I am mentioning basically Bill 1495. And in this the
GAO wrote, ``Bill 1495, if enacted, may result in duplication
of certain past and current efforts, especially with regard to
inventorying and auditing the gold reserves of the United
States.''
And the Treasury's IG wrote, ``I believe that the inventory
and audit requirements proposed in The Gold Reserve
Transparency Act of 2011 (H.R. 1495) to be redundant of the
work that my office and the Mint currently perform.''
And basically, why should Congress pass legislation that
both the IG and the GAO believe is not needed? That is my
question.
It is good to see you both.
Mr. Thorson, would you begin first, and then Mr. Engel?
Mr. Thorson. In our statement, we did say we believe it is
redundant, because the things that are called for in the Act
are things we believe we are already doing, and that is a
proper audit and assay. We do assay to a statistical sampling.
We don't assay every bar of gold, but we do it to a 95 percent
confidence level. So I am not sure what it is that you would
want us to do that we aren't already doing.
Mrs. Maloney. Mr. Engel?
Mr. Engel. The one area that we talked about a little bit
earlier is that maybe if you wanted to have something looked
at, it is the gold reserves that are over at the Federal
Reserve Bank of New York.
Now, there has been some audit of work that was done years
ago by the examiners of the Federal Reserve and apparently the
Committee for Continuing Audit had observed some of that. But
that has not been labeled as audited per se, as I understood it
by the Committee for Continuing Audit.
So if you did want to have something done, I guess you
could have some work done over on the Federal Reserve Bank of
New York. In terms of some of the other, it would be very
redundant of what has been already done.
Mrs. Maloney. Can each of you comment on what you believe
would be the cost to taxpayers of implementing H.R. 1495, since
we are being very cautious about our deficit at this point?
Mr. Thorson. I think both of us would agree. I think the
Mint has worked up some numbers that are somewhere above $60
million or more. It would be in that range, but I think that is
a question you should probably direct to the Mint.
Mrs. Maloney. Mr. Engel, do you have a comment?
Mr. Engel. Yes. We do not know. We haven't heard from the
Mint what the amounts are. It is our understanding they were
working up what they would estimate it would cost.
In addition to the cost of actually doing the inventorying
and moving all the bars, when you assay it, you are taking a
drill and taking a part of the bar to be tested, and that is
basically destroyed, whatever that piece is.
So there will be some loss of the gold from the bars
through the assaying process if you do that for every single
bar that is out there. So that would be a loss from that
process as well.
Mrs. Maloney. I have no further questions, so I yield back
to the chairman.
Thank you.
Chairman Paul. I would like to address the subject of the
cost, because our first estimate--oh, okay.
I will yield 5 minutes to Mr. Schweikert from Arizona.
Mr. Schweikert. You are kind, Mr. Chairman.
And forgive me if this has already been discussed. I am
curious, so please educate a freshman. The different places
that U.S. gold assets are held, IMF, you were just saying with
the New York Fed, the Treasury, any other places?
Mr. Thorson. Not that I can see. No.
Mr. Schweikert. So those three would cover it? Is any of
that pledged to loan facilities that would be World Bank or
anything else we also touched?
Mr. Thorson. No, and to go back to the IMF a little bit,
like I said, I would like to find a direct answer for that one
as well.
Mr. Schweikert. Okay. My understanding from listening for a
moment, Mr. Chairman, was that it has been how long since both
of the--was it the New York Fed which actually would handle a
lot of international transactions so, therefore, they would not
only hold our gold reserves for the United States, but a number
of other member nations?
Mr. Engel. I believe they do hold gold for other nations in
their vault.
Mr. Schweikert. Just for the fun of it, any guess what is
there?
Mr. Engel. I don't know.
Mr. Schweikert. Any guess on the number of participating
countries?
Mr. Engel. No.
Mr. Schweikert. Okay.
Mr. Engel. That would be something the Federal Reserve
would obviously be able to answer, but I don't know.
Mr. Schweikert. Okay. So if we have functionally three
places, two that you are telling me we already have some audit
history, Treasury, we have an audit history on gold supply?
Yes? No?
Mr. Engel. Gold reserves, yes.
Mr. Schweikert. And we are still a little fuzzy was it on
IMF?
Mr. Thorson. I am--like I said, I am still a little
concerned about that particular question. So, but no, that is
it.
Mr. Schweikert. And in a previous question just a moment
ago, didn't we just tell the gentlewoman from New York it was
how much to do the audit?
Mr. Thorson. To do the audit? The Mint's figure to do--the
one that this bill would call for--was in the neighborhood of
$60 million, but that was--you need to--that is a Mint number
and you need to ask them that.
And just to be clear, the ratio of money held by the Mint
and held by the Fed is 95 and 5 percent, 5 percent is at the
Fed. But as far as the cost of this bill to perform that, I
believe your staff has already made an inquiry to the Mint on
that. But that is really--we can certainly audit that as it
plays out and that kind of thing. But it is their number.
Mr. Schweikert. Okay. It is just that it seems stunningly
high, and it is always fun when you are having to audit the
audits where we feel like we are in some of this very unusual
circle. And it would be fun to find out how much of that is
just counting, and how much of it is doing assay work.
And Mr. Chairman, I know you wanted to inquire more on that
point, so I yield back my time.
Chairman Paul. I thank the gentleman.
I do have a few more short questions for you.
Do you have any idea what the current audits cost? You do
partial audits each year. What kind of expense does that
involve?
Mr. Thorson. No. As I mentioned, we use people on different
audits at the same time and that kind of thing, so we have not
really broken down per audit what this costs.
Chairman Paul. Okay. Where do you get the $60 million?
Mr. Thorson. It was--we asked the same questions that you
did as far as what would it be from the Mint when we were
wondering what their statement might be. And that was a rough
number that we were told that off the top of their head it
would be in somewhere in that vicinity.
Chairman Paul. Of course, we have Treasury's statement that
claimed that it would be $15 million, so we would like to--if
you can enlighten us more maybe in writing about really whether
it is $60 million or $15 million. That is a big difference.
And to suggest that I might be participating in the not
being careful with the taxpayers' money, I happen to be the
most conservative Member of Congress when it comes to spending.
But, we don't even need to appropriate money for this. The Mint
could easily take care of this. When you have a monopoly, you
tend to be able to make some money, and last year they made
$400 million.
So even if the high number was correct, we don't have a
problem there. One of the few legitimate functions of
Government is to check our ownership and be fiscally
responsible to find out just what we own and whether it is
really there. So I think the total amount is not, in comparison
to other things, very much.
Also, back to this request that we get more details on the
thing, and you said defer to the--maybe I should ask the Mint
that. And, of course, the Mint is in transition now and we
couldn't get anybody over here from the Mint. But I believe it
was your staff who told my staff that you got the reports and
not the Mint, that you get the detailed reports on all these
audits.
Mr. Thorson. The assay reports, we do get the assay
reports, sure. And I think we provided you some of those. The
inventory of the bars, like you describe, as each one--that is
definitely up to the Mint. As I said, we audit the work that
they do and the records that they keep, so that would be under
them.
Chairman Paul. Of course, if you have an assay, but you
don't know how many bars there are, you don't know where it
applies to which. It seems like you have to have both, together
and matched up.
But anyway, I believe we will follow up on that and ask for
some more details. But if the gentleman from Arizona has no
more questions, I will go ahead and adjourn the committee.
The Chair notes that some members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for members to submit written questions to these
witnesses and to place their responses in the record.
[Whereupon, at 11:27 a.m., the hearing was adjourned.]
A P P E N D I X
June 23, 2011