With the federal budget deficit at $2 trillion and debt-interest costs topping $1 trillion a year, it may be tempting to look for extra cash under the sofa cushions.
Urgency has grown in recent months as Treasury yields have soared to the highest levels in more than 20 years, putting more pressure on interest expenses.
The Treasury Department has tried some unconventional measures recently to take the heat off yields, including buybacks of more long-dated debt and its intervention to prop up the yen that let Japan avoid selling its Treasuries.
Given such surprises, speculation has grown around even more far-out tactics. One idea that comes up from time to time is for the Treasury Department to price its immense gold holdings at market rates.
The U.S. has the world’s largest gold reserves, which total about 261.5 million ounces, or more than double what No. 2 holder Germany has. But the U.S. hoard’s official price was set by Congress in 1973 at $42.22 per ounce, and it hasn’t changed since.
That means all that gold is only on the books for just over $11 billion. But if it was valued at gold’s current price of around $4,000 per ounce, it would be worth $1 trillion.
Comments by Treasury Secretary Scott Bessent last year that the government would “monetize the asset side of the U.S. balance sheet” and create a sovereign wealth fund fueled talk that it could include repricing gold, though the administration later said it’s not under serious consideration.
But scrutiny into U.S. gold reserves keeps popping up. For instance, a recent bill in Congress to establish a strategic bitcoin reserve proposed repricing U.S. gold holdings.
And last year, President Donald Trump questioned whether the gold held in the Fort Knox U.S. Army base was actually there. (The Treasury’s gold is also held in Denver, the New York Fed, and West Point, NY.)
In July of this year, Bessent reignited theories about gold. He said the cache at Fort Knox is all “present and accounted for” — then casually added “the U.S. has the largest pile of gold in the world, over a trillion dollars at current market value.”
Jurrien Timmer, director of global macro at Fidelity Investments, started thinking about “what other tricks the Treasury Department might have up its sleeve to try to bring down the cost of funding.”
In a post on X on Friday, he tackled the “old meme” of the Treasury repricing its gold to market rates, theoretically giving the federal government another $1 trillion to spend without having to issue more debt.
“Far-fetched? Of course, but these days I have learned to never be shocked by anything anymore. Notwithstanding that an action like this would require congressional approval, my guess is that if the Treasury were attempt do this, it would backfire in a big way,” Timmer warned.
For one thing, the U.S. dollar would take a hit, he predicted, presumably as a sudden influx of $1 trillion would stoke more inflation, which is already heating up.
Timmer also cautioned that the “term premium” in Treasury yields would rise even higher. Rates have shot up in recent months for a combination of reasons, including expectations for Fed rate hikes, robust economic growth, and persistent inflation.
But the so-called term premium, or the extra return investors demand to cover the risk of holding debt over the long term, has also climbed. Such risks could range from more geopolitical turmoil to a fiscal crisis or an economic downturn.
While it may seem unlikely in the U.S., other countries have revalued their gold reserves over the last 30 years. A note from a Federal Reserve economist last August pointed out that Germany, Italy, Lebanon, Curacao and St. Maarten, and South Africa have done so.
In Italy and Curacao and St. Maarten, their central banks used the proceeds. In South Africa, Lebanon, and Germany, their central governments reaped the windfall.
But when it comes to reducing a country’s debt burden, gold revaluation isn’t enough, the Fed note added. That’s as gross U.S. debt has soared to $40 trillion, and no end in sight to $2 trillion annual budget deficits.
“Central governments have drawn on revaluation proceeds to retire existing debts, often in exceptional fiscal circumstances,” the Fed note added. “While reducing the debt stock using revaluation proceeds improves the fiscal situation at the margin, drawing on revaluation proceeds may not address larger structural challenges.”