(AP) – Forget Fort Knox or the Federal
Reserve. Texas has decided to start keeping its gold holdings within in its own
borders. But what makes sense politically in such a sovereignty-loving place is
creating a logistical conundrum. Texas is the only state that owns an actual
stockpile of gold, according to public sector and financial industry experts –
not just gold futures or investment positions, but approximately 5,600 gold
bars worth around $650 million.
The holdings, stored at a New York bank, for
some harken back to century-old fears about the security of currency not backed
by shiny bullion. The Legislature’s decision this summer to bring its gold
cache home was hailed by many conservatives, and even some on the far left, who
are suspicious of national government.
“There will always be the exact same amount
of gold in there as the amount that was put in,” no matter what happens to the
financial system, said Republican state Rep. Rep. Giovanni Capriglione, a
former tea party organizer from the Dallas suburbs who authored the gold bill.
But for the Texas comptroller’s office, which has to implement the policy, the
catch is that the new Texas Bullion Depository exists in name but not reality.
The law doesn’t say where the depository would be or how it should be built or
secured. No funding was provided for those purposes or for leasing space
elsewhere.
Further complicating matters is a provision
allowing ordinary people to check their own gold or silver bullion into the
facility. “We are honestly at the phase where the questions we are answering
are creating more questions that we have to answer,” said Chris Bryan, a
comptroller’s office spokesman. Charged with figuring everything out is a
four-member task force within the comptroller’s office, which recently
dispatched an official to a precious metals conference to study up. One
immediate concern is the possible cost. When Fort Knox was completed in 1936 it
cost $560,000 – or roughly $9.2 million in today’s dollars.
When Capriglione first introduced his bill in
2013 it had an estimated cost of $23 million.
But Capriglione now thinks private companies
would bid to create a depository in exchange for charging storage and service
fees.
The plan has kicked up chatter outside of
Texas that it’s a step toward secession, an idea raised now and then on the
state’s farthest political fringe. “Just moving it would be pretty expensive
and, unless Texas is anticipating withdrawing from the union, which I suspect
is some peoples’ want, I don’t see what advantage it is…,” said Edwin Truman, a
senior fellow at the Washington-based Peterson Institute for International
Economics who has written about gold and monetary policy. “What are you getting
for what you’re paying for?”
But Capriglione says he’s just convinced that
gold is safer, especially close at hand. After the bill sailed through the
Legislature, Republican Gov. Greg Abbott signed it and Tweeted: “California may
be the golden state, but Texans deserve to keep their gold in-state!” Texas’
state-owned gold is held by the University of Texas Investment Management
Company, the nation’s second largest academic endowment behind Harvard. It
began gradually amassing gold futures in 2009 as a hedge against currency
weakness in the recession. It eventually transitioned to physical bullion, and
by 2011 had $1 billion worth. The price of gold has since mostly slumped amid a
soaring stock market. Today, the fund’s gold bars represent about 2.5 percent
of its $25.4 billion in holdings, said Chief Executive Officer Bruce Zimmerman.
Asked about the new depository, Zimmerman
said, “We don’t do politics. We’re just investors.” The Fed declined comment on
the new Texas depository, as did HSBC bank, which currently stores the gold
bars in an underground vault in Manhattan. Stacked together, the state’s gold
occupies about 20 square feet. It’s unclear whether repatriating it could be
done with an electronic transfer or would require a fleet of planes or armored
cars. One possible effect of the new depository might be more attention to the
idea of returning to the gold standard, long a cause of former Texas Rep. Ron
Paul.
The Federal Reserve was founded more than a
century ago so that the value of the U.S. dollar no longer had to be anchored
to gold, and Richard Nixon formally scrapped the gold standard in 1971. “I
think Texas is once again showing they’re ahead of the curve,” said James
Rickards, author of the 2014 book “The Death of Money: The Coming Collapse of
the International Monetary System.” “They’re not waiting for the disaster, but
preparing for it.”
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