What could happen if there really isn’t any gold inside Fort Knox? [Video]

Well, there’s a question, huh?

A surprising amount of the world’s trade and commercial activity runs on trust.

If that trust is absent, the entire edifice of the finance and economics behind central banks and promissory notes as currency comes crashing down.

The secret of the success of the United States dollar bumping the British pound sterling as the world reserve currency was the massive stash of gold that underpins everything, sitting in the Federal depository at Fort Knox in Kentucky.

Since they built it, Fort Knox has been synonymous with security and financial reliability In the public psyche.

A huge part of the story is Fort Knox itself. They named it after Gen Henry Knox, the first US Secretary of War.

First established as “Camp Knox” in 1918, it has variously been a training camp and military installation. Since 1936 it has been the headquarters of the US 1st Armored Division.

Renamed “Fort Knox,” the complex was the Army Armour Center - responsible for the research, development, and training of the US Army’s key armored land battle units.

This changed in 2005 when it became Human Resources Command after the Armored Division was moved to Fort Benning in Georgia.

The expertise in armor and blast protection, security, and impenetrability, together with the constant presence of trained soldiers and weaponry, made Fort Knox the natural choice for establishing a national gold depository.

The US Department of the Treasury needed to find a home for 4581.5 tons of gold - so it ordered a building measuring 105 feet by 121 feet, 42 feet above ground level, to house the gold bullion.

The “United States Bullion Depository,” as it is officially known, was commissioned in 1936.

The Federal government transferred the US military's land and it remains separate from any involvement with the US Department of Defense.

Until then, the Treasury’s gold was stored between vaults in New York and the US Mint in Philadelphia.

The idea was to set up the new depository away from coastal locations, which were thought to be more vulnerable to enemy attack.

The building is made of high-density concrete with an inner steel casing to secure it from bombs, missiles, and other hostile methods of entry.

It is so secure that during World War II, as a precaution, original copies of the Magna Carta, Abraham Lincoln’s Gettysburg Address, and the US Constitution and Declaration of Independence were stored there.

The US Treasury runs the facility with an iron fist. So tight is the security that not even the President of the United States can enter the vault. The only exception to this was Franklin D Roosevelt. He was concerned, after Pearl Harbor, that the vault needed to be upgraded to protect the stored gold from any enemy invasion.

Secrecy has been the watchword since the idea of a centralized depository was thought of

To this day, nobody (outside of a tiny circle of operational staff) knows the exact amount of gold stored, or even whether there is any gold there at all.

There has been a persistent rumor that they built Fort Knox as a “Trojan Horse” type of decoy, and we stored the real gold consignment elsewhere for security reasons.

This makes sense - splitting the storage locations into smaller units would reduce the risks if a single vault was ever breached and the gold taken.

But, to go back to the original question, what would happen if there really isn’t any gold inside Fort Knox?

Every major world economy is underpinned by gold - in fact, until 1971, the US dollar was also pegged to gold - you were spending money that knew no inflation (or a very small variation depending on economic conditions) and took a long-term view on monetary policy decisions.

It was in 1971 that the Nixon administration removed the connection between gold and the dollar to create what we know as “fiat currency.”

The term “fiat” is from Latin. It translates to “Let it be done” or “It shall be.”

The government now issues currency via The Federal Reserve Bank (the US’s Central Bank), which promises to back the value of the money they issue.

Look on any dollar bill - or multiple dollars - and clearly printed on each one is “Federal Reserve Note” and “This note is legal tender for all debts, public and private.”

And this is the crucial part - there is now no relationship between the US dollar and gold. The only connection is that in the US, they state the gold price in dollars - in India they state it in rupees, in the UK it is quoted in pounds - but the underlying security is not dependent on gold.

What this means is that if was discovered that there was no gold in Fort Knox, in theory, it would have little effect on the markets or the US currency.

The gold in Fort Knox never trades - so it is not part of the “pool” of gold known to exist and exchanged. This “pool” of known gold circulating in the market is what prices are based on.

When Fort Knox was built, it took 39 freight trains to move 45% of the results of 150 years of gold mining proceeds into the vaults.

None of this gold reserve could be introduced into the gold market or taken from it without it being noticed - unless they did it stealthily. Even then, it would take years to move this amount of gold quietly.

This quantity of gold would then take centuries to sell. It would need to be slipped quietly into the market to prevent disturbing the equilibrium in regular trading - in the same way as the Bunker–Hunt brothers did with silver bullion in March 1980.

For those who don’t know the story, at one point, it’s thought that the two brothers held around one-third of the world’s free-market silver bullion.

There are two schools of thought about the gold bullion in Fort Knox.

The first is that it would make no difference to the US dollar if there were none – the second is that it would lead to its destruction, and the destabilization would mean it would lose its world reserve currency status.

Like the controversy surrounding the Apollo missions to the moon being real, finding that Fort Knox has no gold would undermine confidence in the United States' financial security and standing in the international community.

Even though, in reality, the gold reserves are uncoupled from the dollar-based fiat currency system, the revelation might well be enough to call into question other assumptions about the Fed and other US financial institutions. This could start a fiscal contagion which would be difficult to control.

The promissory nature of the fiat US dollar would, indirectly, be called into question They could no longer guarantee the US government and Federal Reserve would be able to meet their financial obligations. At this point, all would be lost.

Hopefully, in a world full of conspiracy theories and unfounded rumor and gossip, Fort Knox does have the US’s gold reserves in its vaults - this way, we won’t ever need to find out the consequences of it not being there, after all.