In recent days, the spotlight has turned to the United States’ gold reserves, particularly the storied Fort KnoxAmidst this growing focus, U.STreasury Secretary Janet Yellen has dismissed the idea of revaluing gold reserves to market levels, yet some analysts argue that such a move could invigorate gold pricesFrancisco Blanch, the head of commodity research at Bank of America, asserts that re-evaluating the value of U.S. gold reserves in light of current market conditions could bolster confidence in the precious metal, suggesting that it remains a relevant asset rather than a relic of the past.

Blanch remarked, "I believe this could be favorable for the gold market since it would signal that gold is no longer the barbarous relic neglected by central banksEven the largest central banks are showing renewed interest in gold." However, he also noted that re-evaluating gold reserves would not aid the government's primary objectives, such as weakening the dollar, lowering energy prices to combat inflation, or encouraging interest rate cuts by the Federal Reserve.

The conversation around whether to re-evaluate U.S. gold reserves has intensified in recent weeks, driven by the notion that it could enhance the Treasury's borrowing capacity under the existing debt ceilingCurrently, the Treasury uses its physical gold reserves as collateral to borrow cash from the Federal ReserveThe central idea behind the proposal is to adjust the value of gold reserves from the historical price of $42.22 per ounce, a relic of the Bretton Woods system, to current market pricesIf such a revaluation were to take place, the collateral value of the Treasury’s gold reserves could leap from about $11 billion to approximately $750 billion.

At this stage, serious discussions surrounding this proposal have yet to materialize; however, many believe it could buy the Treasury more time in addressing issues related to the debt ceilingAccording to analysis from Barclays, the increase in the Treasury's balance at the Federal Reserve could allow the government to continue spending without having to issue an excess of short-term debt

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This adjustment could potentially reduce the supply of short-term Treasury bills by about 12%, pushing the anticipated “X-date,” or the date when the government may exhaust its borrowing capacity, from the current forecast of August 2025 to sometime post-February 2026.

Nevertheless, Secretary Yellen rebuffed speculation regarding an imminent revaluation of the government’s gold assetsWhile discussing plans for establishing a sovereign wealth fund, she indicated that the notion of revaluing U.S. gold reserves “is not something I have in mind.”

At the same time, some experts suggest that despite the recent uptick in discussions around the proposal, the U.S. government is unlikely to take it seriouslyLou Crandall, an economist at Wrightson ICAP, highlighted that a revaluation would alter the Federal Reserve’s balance sheet, leading to an increase in gold certificate accounts on the asset side, alongside higher balances in the Treasury General Account (TGA) on the liabilities sideFrom a balance sheet perspective, this scenario would resemble a new round of quantitative easing (QE).

In the long run, using funds from a re-evaluated gold reserve would drain cash from the TGA, directing it towards bank reserves and amplifying liquidity within the financial systemHowever, the Federal Reserve's current policy trajectory focuses on shrinking its balance sheet, known as quantitative tightening (QT), a process initiated in June 2022. To date, the Fed has reduced its balance sheet by over $2 trillion, bringing total assets in its System Open Market Account (SOMA) down to approximately $6.8 trillion—still significantly above the pre-pandemic level of $4 trillion.

Speculation about the ending of QT has varied in the marketSome Wall Street analysts project that the Fed may conclude its QT by the end of 2025 or early 2026, while Fed Chair Jerome Powell has recently stated that reserves in the current banking system remain considerable compared to mid-2022 levels, implying there is still a long way to go

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Should the Treasury decide to re-evaluate its gold reserves, it would further expand the Fed’s asset base, likely delaying the conclusion of QT even longer.

Given the intertwined nature of fiscal and monetary policy, the probability of a revaluation of the Treasury's gold reserves appears slimCrandall points out that the potential benefits of such a measure are limited and could provoke a strong public backlashFurthermore, the Treasury may pursue more innovative strategies to address the challenges posed by the debt ceiling instead of prioritizing a revaluation of gold reserves.

Meanwhile, the surge in gold prices has not gone unnoticed, with several Wall Street banks bullish on gold prices moving forwardThis year, gold prices have repeatedly broken records, with spot gold prices dropping by a slight 0.1% to settle at $2,936.25 per ounce last Friday—marking the eighth consecutive week in which gold prices have risen, the longest streak since 2020. Notably, exchange-traded funds (ETFs) backed by gold are witnessing a rapid increase in holdings, making it a prominent highlight in the market.

In fact, the ascent of gold prices this year is a continuation of last year’s strong performanceAccording to Louise Street, a senior market analyst at the World Gold Council, gold prices set new records 40 times throughout 2024. The latest Global Gold Demand Trends report released by the World Gold Council indicates that global gold demand—including over-the-counter trading—reached a historic high of 4,975 tons in 2024, propelled by robust central bank purchasing and increasing investment demand, which pushed the total dollar volume to $382 billion.

A multitude of institutions anticipates that ongoing trade tensions, geopolitical concerns, persistent demand from central banks, and uncertainties surrounding global economic growth will fuel further increases in gold prices throughout the yearGoldman Sachs has notably raised its price forecast for gold by a significant margin, predicting that by the end of 2025, gold prices could reach $3,100 per ounce—up from $2,890—citing the sustained strength of central bank gold purchases as a core rationale

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