Fed-issued paper advocates government gold sales
WASHINGTON, June 12 (Reuter) - A new Federal Reserve study argues that the United States and other governments should sell off their gold reserves to reap huge benefits for their economies.
``Government ownership of gold does not contribute directly to the (general) welfare,'' the discussion paper, authored by a Fed economist and three other analysts, says.
The paper was issued by the central bank here but is the sole responsibility of the authors and should not be seen as reflecting the views of the Fed's board.
Fed Chairman Alan Greenspan is a long-time proponent of a return to the gold standard, although his views are not widely shared at the central bank or generally among economists.
Governments hold some 1.11 billion ounces of gold. U.S. holdings alone amount to 262 million ounces.
The Fed study comes as a number of governments are exploring ways to make better use of the millions of ounces of gold they hold in reserves.
As part of its effort to participate in European monetary union, Germany is revaluing its gold reserves. The International Monetary Fund may sell off some of its gold holdings to help finance a lending program for poor nations.
According to the study, if governments sold their gold immediately, rather then holding it, the economic gain could come close to $370 billion.
Much of the benefit would accrue to the governments themselves in the form of additional revenue. Gold consumers would also benefit but mining companies would lose out.
The study calculates that an immediate sale of all government gold stocks would push the gold price down to $309 per ounce from an assumed $350. The gold price closed in London on Thursday at about $342.50.
The paper acknowledges that there may be some advantages to governments holding gold, but it argues that those advantages are eroding.
``The importance of gold as a possible future reserve asset, as part of a war chest (in case of crisis), and as a strategic material has clearly diminished in recent years and will, in all likelihood, continue to diminish,'' it says.
If the U.S. and other governments nevertheless were worried that they might lose out on such advantages by selling their gold now, they could consider loaning it out instead, and gradually disposing of it, according to the paper.
The study admits that there might be some difficulties in following such an approach. But it argues that the potential benefits might well outweigh the costs.
The study was authored by Fed economist Dale Henderson, Massachusetts Institute of Technology student John Irons, University of Michigan professor Stephen Salant and Sebastian Thomas, a research analyst at Miller, Anderson and Sherrerd.
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