Do gold have some effort on FED’s policy? Is it used to make pyramid of money? If yes, than how FED is pricing its gold?
The Fed doesn’t price gold anymore. They demonitized it back in 1971 when Nixon ended the gold standard. It’s price has since been determined by free market futures trading on the NYMEX.
The Fed denounces the significance of gold in today’s economy, other than it being a demanded commodity for jewlery, etc. Having said that, gold is still considered by some to be the true last money. Therefore, if many people exchange their dollars for gold then this drives the price of gold up with respect to the price of money. The Fed doesn’t like this because it shows loss of confidence in the fiat money system. It is known that the Fed has intervened in the gold market to artifically knock down the price of gold. They either lease out large quantities of gold from the US Treasury to supply the demand or they get a bank to sell a large volume of gold futures contracts on the NYMEX to beat down the price of gold. Investors see the volatility and price drop in gold and it makes them fearful of price fluctuations and that drives them back to the fiat dollar. The Fed can only do such artificial activities for so long. Eventually those gold banks that leased gold from the Treasury will have to buy up gold from gold mines to pay it back to the treasury. That could cause rapid price rise in gold. Also, selling futures contracts means that they will have to either be bought back in the future (to close them out) or they will have to deliver gold to the buyer at the end of the contract. Eventually, such artificial activity won’t be feasible anymore.
Ok, so I have one more question.
In article “The Insolvency of the FED” is showed FED’s equity ratio. I know what it is form definition on Wikipedia. However I don’t understand how it is evaluated for FED(what is Owner’s Equity and what is Total Assets in this case) and why revaluation of gold can change this ratio.