Fort Knox Under Scrutiny: What Trump's Audit Could Mean for Gold Markets

“We’re going to go to Fort Knox, the fabled Fort Knox, to make sure the gold is there”. That is what US President Donald Trump announced a few weeks ago, relaunching the debate about America’s gold reserves.

The quantity of gold in question is over 147 million ounces, more than 4,000 tonnes, representing more than half of the US Treasury reserve. But the deposits there also include millions of ounces of gold owned by central banks from other countries, such as Italy, which are holding part of their reserves in the US.

Over the past few decades, conspiracy theories have surfaced repeatedly about this massive amount of gold stored in those vaults. A full inspection could put an end to those speculations. But it could also open many other questions, particularly if any surprises emerge.

The Role of Fort Knox and Past Audits

The United States Bullion Depository – usually simply called “Fort Knox” – is the official name of a fortified vault building close to the United States Army facility in Fort Knox, Kentucky. A little more than half the US gold reserves are stored there, or – at least – should be.

The name ‘Fort Knox’ has almost become a byword for security. It should underpin confidence in the US financial system. But how often have checks been carried out to confirm that the gold is still there? None for the last half a century, by most accounts. Thus the conspiracy theories about the actual quantity of gold stored have emerged and persisted.

Yes, the high level of security would suggest that stealing gold from Fort Knox is almost impossible, but then escaping from the top security island prison of Alcatraz was supposed to be impossible until it happened.

President Nixon took the US dollar off the gold standard in 1974 and in the same year we had the last – but only partial – inspection at Fort Knox. For a fully comprehensive inspection we need to go back to 1953, over 70 years ago. Over the last few decades, various requests to verify the real status of this gold have been denied. This has led to curiosity and various conspiracy theories about this store of bullion. What is really stored inside Fort Knox today? Calls for transparency and for an accurate check have grown over the time.

Trump’s Audit: Motivations and Potential Outcomes

There could be many reasons behind the decision to undertake an audit on America’s gold holdings. It seems more than likely that this is part of a political strategy, as President Trump would probably try to turn this into a showcase event. Probably the president sees an opportunity for a win-win situation from the audit: if all the gold is there, he could dispel questions about America’s gold reserves and gain trust; if on the other hand, the quantity of gold does not match the official records, he could use this narrative as an argument against his predecessors.

Of course, an audit will have consequences, which would vary depending on its result.

A positive outcome could reassure the market and strengthen the solidity of the US dollar and the confidence in the American economic system. Markets will be reassured about the transparency and security of the gold reserves.

Vice versa, if the amount of precious metal stored is significantly different from the one declared, there could be turmoil on markets, exposing the US economy and the greenback to vulnerability. All assets, starting from the currency market and continuing with stocks, bonds and commodities could in some way be impacted. Clearly, the larger any discrepancies from the official gold storage numbers, the bigger the damage will be. In other words, both outcomes could have profound implications for domestic and global markets.

Market Reactions and Economic Impact

The audit could reassure the markets, but it could also be disruptive.

Of course, the first asset impacted would be gold itself. A confirmation that the volume of gold inside Fort Knox matches the declared volume should reassure investors, stabilizing the price. But what will happen if the gold is not there? The price of gold would probably skyrocket, while price volatility would increase, particularly for companies trading gold or holding large volumes of bullion).

Also, stocks and bond markets could be impacted, with a loss of confidence in the US financial system that could trigger a sell-off on US assets, with consequences spreading around the international financial system. It seems quite likely that financial companies would be the most impacted.

In this hypothetical scenario, it will be interesting also to see if the US dollar’s dominance will be put in question, while there will be a good chance that a negative outcome of the audit could accelerate the de-dollarization process, with emerging country central banks likely to increase their bullion holdings.

And also bitcoin, sometimes called “digital gold”, will be involved in the dispute. Indeed, investors could be looking for alternative assets, not exposed to inflation risks and not under the direct control of central banks.

The proposal for an audit inside Fort Knox is triggering the curiosity of millions of people around the world. Is the American gold still where it should be? But this “check” could be much more than a political move. It could be an important market mover for many financial assets. Investors and policymakers will surely follow this long-expected audit closely.

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