NEW YORK--When my friend told me he thought there was a chance he could help me get to see the largest deposit of gold on the planet, you might say I was a little excited.
It's not that I hadn't seen the visceral representation of massive wealth up close and personal, and even recently. After all, only last month, I got a behind-the-scenes tour of the U.S. Bureau of Engraving & Printing's production line of the brand-new,, and found myself staring at $38.4 million in cash.
And not long after that, I was at thein Philadelphia watching coins get made and was standing in front of $250,000 worth of shiny new quarters.
But the biggest collection of gold on Earth? Oh, yeah, I was going.
Unfortunately, this was all happening on my Road Trip 2010 swing through the Big Apple, and I was trying to arrange it on the shortest of notice. And, it turns out that the Federal Reserve Bank of New York--where the gold is held--doesn't allow anyone, including press, to photograph the massive stores of bullion. So, in the end, I didn't get a chance to see more gold than is held even at the U.S. Bullion Depository, otherwise known as Fort Knox.
Still, the folks at the New York Fed understood my situation and helped out as best they could: they sent me a terrific presentation (PDF file) describing the gold vault, talking about the history of gold, and explaining just why it is that, 80 feet under New York, 36 foreign nations and the United States have entrusted countless billions of dollars worth of gold to the Fed:
The gold bullion in the Federal Reserve Bank of New York's vault is part of the monetary reserves of foreign governments, central banks, and official international organizations around the world. It is largely a relic of an era when the gold standard and gold exchange standard were used to establish the relative values of national currencies, and gold itself was used to meet international payments.
A currency on an unrestricted gold standard could be converted into gold at a fixed price--regardless of the amount involved or the nationality of the currency's holder. Great Britain, through a series of laws passed between 1816 and 1821, became the first modern nation to link its money to gold in this way. Although the United States defined the value of the dollar in terms of gold and silver even earlier (the official price of gold was established at $19.75 a troy ounce by the Coinage Act of 1792), the government did not adopt an exclusive gold standard until 1900. By 1905, most of the world's major trading countries had adopted the gold standard as well.
Few European nations could maintain their gold standards during World War I, however, as shipments of the metal frequently were embargoed. And when the standards were restored in the late 1920s, many countries adopted a revised version called the gold exchange standard. This revision appealed to countries that wanted some sort of gold standard but also wanted to halt the drain of gold reserves. The gold exchange standard did just that by permitting the use of "reserve currencies" instead of gold in exchange for their currencies.
At first, the United States and England--countries with substantial gold reserves--became issuers of the world's "reserve currencies." But in 1931, after maintaining gold parity throughout the stress of the decade following World War I, England suspended gold payments. This set off a wave of similar suspensions so that, by the first half of 1932, more than 40 nations had deserted either the gold standard or the gold exchange standard. Then, in 1933, President Franklin D. Roosevelt imposed a ban on U.S. citizens' buying, selling, or owning gold. While the U.S. government continued to sell gold to foreign central banks and government institutions, the ban prevented hoarders from profiting after Congress devalued the dollar (in terms of gold) in January 1934. This action raised the official price of gold by more than 65 percent (from $20.67 to $35 per troy ounce). Gold coins and certificates considered collectors' items were exempt from the prohibition, and artistic and industrial users of gold were permitted to deal in the metal under a special Treasury license.
Legal gold transactions had to be made at the official U.S. government price until 1968, when gold regulations again were changed to prevent runs on U.S. government gold reserves. Under the new system, the world's currencies would still be valued in terms of the dollar, but the dollar would no longer be related to gold reserves. Also, since 1968, licensed dealers have been able to buy and sell gold at market-determined prices.
When the United States stopped selling gold to foreign official holders of dollars at the rate of $35 an ounce in 1971, it brought the gold exchange standard to an end. In August 1974, President Ford repealed the prohibition on the public's owning gold or engaging in gold transactions. Today, no country bans private ownership of gold.
Today, there are 36 foreign nations that entrust at least some of their gold deposits to the Fed. According to the Fed, those governments trust it because they believe in the safety it provides, as well as the many services it offers, and its convenient location in the center of New York's financial district.
In 2008, there was a total deposit in the vault of 216 million troy ounces of gold--a troy ounce is 1.1 times heavier than a standard ounce. In total, that amounted to 22 percent of the entire gold reserves on Earth, and at Monday's market price of $1,181, is worth about $255 billion. The U.S. government's official price of gold in 2008 was $42.2222 per troy ounce, meaning that if using that price, the collection was then worth about $9.1 billion.
One bar weighs about 27.4 pounds--and, at $1,181 per ounce, is worth $388,312.
You can also imagine the strain such a large collection--not to mention the enormity of the vault required to hold it--would put on the ground beneath it. That's why the gold vault was built over a rare piece of New York City foundation stable and strong enough to support the gold and its incredible cage. The vault is 80 feet below street level and was cut into a 90-ton section of steel.
Of course, I'm taking the Fed's word for all of this, since I didn't get a chance to see it for myself. But that's OK, really. It is a truly exciting notion just knowing that the gold is there, and I have little doubt that one day, I will find myself staring at those billions of dollars worth of bullion.
For the next two weeks, Geek Gestalt will be on Road Trip 2010. After driving more than 18,000 miles in the Rocky Mountains, the Pacific Northwest, the Southwest and the Southeast over the last four years, I'll be looking for the best in technology, science, military, nature, aviation, and more throughout the American Northeast. If you have a suggestion for someplace to visit, drop me a line. In the meantime, you can follow my progress on Twitter @GreeterDan and @RoadTrip and find the project on Facebook. And you can also test your knowledge of the U.S. and try to win a prize in the Road Trip Picture of the Day challenge.