Letters to the Editor's Note

Dhirendra Kumar's Editor's Note titled 'The Fort Knox Gold Mystery' delved into the Fort Knox controversy. It also explored the uncertainties surrounding gold as an investment, raising questions about its physical reserves and the complexities of gold trading.

The intriguing piece sparked a wave of responses from our readers, reflecting their diverse perspectives on gold as an investment and its evolving role in the financial markets.

Summary

This column delves into gold, not as an investment recommendation but as a reflection on recent events that highlight its fundamental issues. Two developments triggered this discussion: delays in acquiring physical gold stored at the Bank of England and the controversy surrounding Fort Knox.

A remarkable drama has unfolded around Fort Knox, where the US government stores its gold reserves. It began with Elon Musk questioning if the gold was still there, followed by Senator Rand Paul lamenting his decade-long denial of access and President Trump vowing to verify the existence of the reserves. While the US Treasury insists on annual audits, critics argue these are not comprehensive checks of the 147 million troy ounces supposedly stored there.

This raises a troubling question - if doubts can exist about gold in the world's most secure vault, what about the gold in private bank lockers or the 'paper gold' in demat accounts? Gold is traditionally seen as the ultimate haven, but its safety and verifiability are now in question.

Meanwhile, London's gold market relies heavily on 'unallocated' gold -paper promises backed by a general pool rather than specific bars. This system works until too many people demand physical delivery simultaneously, exposing its fragility.

These issues reinforce the long-standing argument against gold as a major investment. It produces nothing, generates no income and depends solely on what others are willing to pay. The growing concerns over its custody and authenticity make its investment case even weaker.

Gold may always hold allure, but recent events only strengthen the argument that it should play a minor role in an individual's portfolio, with a stronger focus on productive, value-generating assets.

What our readers say

Thank you for your clear thoughts on investing in gold. I had about 5 per cent of my portfolio in gold, largely in SGBs (as of January 1, 2025), which I used to buy regularly in the GOI issues (until the asking price reached Rs 6,500), and some in the Quantum Gold ETF. It is a little amusing that in the last 4-5 weeks, my share portfolio has taken a knock every week while the gold portfolio either remains stable or gains.

With the fall in equities, the gold portfolio is now 6.2 per cent of my total holdings. I was tempted to think I should sell part of my equity portfolio and buy SGBs in the secondary market to hold closer to 10 per cent in gold. But after reading your essay, I feel I should continue to hold equity and reassess the strategy after 2-3 months when the markets stop dancing to the TRUMPet music - or maybe sell some SGBs and buy some beaten-down blue chips. - Dara Kalyaniwala

The US Fed stores its gold in many places: West Point, New York, Denver, Colorado, Fort Knox and one or two more places. The issue regarding Fort Knox feels like a created one for multiple reasons.

As far as the London Bullion Metal Association (LBMA) is concerned, five people sitting in a room decide the retail price of gold twice a day - at 10:30 am and 3:30 pm London time - setting off gold trading worldwide. I am not sure why and who those five or so people are.

But to stress your point that gold as a store of value is only a hedge against inflation and other untoward times and that there are better asset classes to earn is true.

That said, one cannot overlook that gold and silver are 'real money' only when held physically. - Rajbir

I have some disagreements with your logic. Firstly, all governments must conduct regular audits anyway. It is a governance failure not to do regular audits, and it could even be a deliberate way to hide possible scams. What's poor gold's fault in this?

Also, as an alternative to fiat currency, I think gold is INFINITELY SUPERIOR TO CRYPTO!

So, if one buys gold coins from a reliable source and keeps them in a bank locker, it is definitely better managed than 'governments'.

Would appreciate it if my logic has any faults. - Deepak Karnik

What did I think? In just two words - crystal clear and highly sobering. It has given concrete shape to vague feelings and fuzzy assumptions that one had. A very enjoyable reading, to say the least. - Srinivas Prabhu

This article was originally published on March 17, 2025.