When I read the headline, I thought the Texas state government was going to have to buy an awful lot of gold to fill any serious depository and I was wondering how that was going to affect the state budget.
Then I read the story. The Texas state government isn’t planning on buying any gold for its depository. It wants the federal government to give them the gold.
And that’s when I stopped taking this seriously. This is just a political gesture.
Or going broke from the cost of storing something that isn’t particularly gaining them any value. The University Endowment Fund has gotten a whopping 3% return on investment* on it’s gold holdings over the past four years (the S&P is up 60% over the same period).
And that’s BEFORE accounting for the cost of storing the gold (apparently roughly $1M/year) or the cost of transferring that gold to the buyers should they decide to sell it.
The way I read it the University of Texas Investment Management Company has something like $1 billion in gold they’d move there. That gold is currently in fed vaults. Beyond that they would try to interest others to deposit gold there thus making a business out of it.
I have no idea if it is a good or bad idea or not. Seems a waste of time and effort to me but it’s their call.
The university endowment fund bought 6,643 100-oz bars in 2011. Some of that gold has since been sold but the fund still owns 4,200 bars. At today’s prices that’s worth $497,250,600.
That gold belongs to the Texas state government. It’s currently being stored in New York City. But it’s in the vaults of HSBC (a British banking company) not the Federal Reserve. (Which appear to be a poor financial decision. HSBC is charging Texas about a million dollars a year for storage. The Federal Reserve would charge them about four thousand dollars a year.) Texas is free to move that gold anywhere it wants to, including back to Texas. But the proposed law isn’t asking for this gold to be moved.
The state government of Texas does not have any gold stored in the Federal Reserve vaults. What they are asking is for the federal government to move a billion dollars worth of gold that the federal government owns from the New York depository to this new depository in Texas. But it’s not just asking for a change of location. The law calls this transfer a “repatriation”. Once the gold has been placed in Texas, it cannot be removed without the permission of the Texas state government.
What’s more, the Texas depository doesn’t exist as a physical location. And there are no plans to build such a location. (Estimates are that it would cost Texas around $14,000,000 a year to operate such a facility.) Instead the Texas government proposes dividing up the gold it’s holding and allow private businesses to store it.
Yes, I’m envisioning a lot of break-ins at self-storage units that are converted to “private depositories”.
But from a Texan’s point of view, so what? The gold was given to them. It’s not like they lost anything. Easy come, easy go.
As I noted above, the Texas state government has no plans to move the gold it currently owns into its depository “system”. I think that right there tells you how seriously they are treating this.
If anything good comes out of this, perhaps it will be public awareness of how much the state of Texas is overpaying to store its gold in a bank when it could do so for far less in the Federal Reserve vaults. It’ll be ironic if the result of this law is that Texas gold ends up being moved into the Federal Reserve.
And…uh…why exactly would the federal government do anything other than tell the Great State of Texas to go pound sand in response to this request?
(I mean, hey, Federales–how about y’all “repatriate” a few million bucks into my personal bank account! I promise I’ll keep it safe for you–for a modest fee–say 1%…
The question is–does the State of Texas own any gold? The only potential of that in the article is that the *some 4,200 gold bars bought in 2011 by the University of Texas’s endowment fund *. So, does the State of Texas own that gold? Or, is it owned by some legal entity other than “The State of Texas?”
That article is superb at poking holes in the whole idea.
The U.S. backed down against Cliven Bundy, who was backed only by a gang of bubbas armed with shotguns.
Texas has a large number of military bases; the 36th Infantry Division operates under direct control of the Governor. The 7th Bomb Wing has a large number of B-52 and B-1 bombers. Texas has the capability to make “dirty bombs” easily, et cetera, et cetera. If attacked they may set their oilfields on fire. I’ve no idea how close they are to developing nuclear weapons. Would you want to mess with Texas?
(I personally think the U.S. should have gone after the criminal Cliven Bundy with guns blazing. … And if Governor Abbott refuses to step down and open his country to inspectors, I think a Bush-Doctrine preemptive war – “Shock and Awe” – is called for.)