Gold price: What would be the impact of a revaluation of the US gold reserves?

The Trump administration has ordered the first inventory of the Fed’s gold reserves since 1974 and is also considering an update of the gold price in their foreign currency reserves. After all, the book value of the gold reserves has remained unchanged since 1973 at US$42.22 per troy ounce. If the US gold reserves were revalued, each ounce of gold in the vaults of the Fed would see an increase in value of around US$2,850. As the US has the largest gold reserves in the world at 8,133 tonnes, the assets of the US Department of the Treasury would appreciate by US$772.26 billion as a result of the revaluation.

The consequences of a sudden money supply expansion

Even if it is only book money: The US government would be three-quarters of a trillion richer following a revaluation – a similar effect to firing up the money press. This could lead to a devaluation of the US dollar and thus to significantly stronger inflationary trends than the current US rate. The Fed would have to counteract this development by raising the key interest rate, which could, in turn, have a dampening effect on the domestic economy. On the other hand, the revaluation of US gold reserves would have a positive impact on government debt. This could compel other countries’ central banks to revalue their gold reserves if they are not up to date.

The impact on the gold price

The revaluation of the US gold reserves would not have a negative impact on the gold price. After all, it would be the money supply which would be expanded, not the quantity of gold. Rather, experts see the possibility that demand would rise, as was the case with the last revaluation of the US gold reserves in 1973, which triggered a gold boom at the time. However, a return to the gold standard – in whatever form –, as some suspect, is highly unlikely. It was, after all, abandoned worldwide for good reasons.