Federal Reserve And Gold Storage
Federal Reserve and Gold Storage
Federal Reserve, also referred to as ‘the Fed’, is the United State’s central bank, as well as the world’s most powerful financial body. Its autonomy comes from the fact that its decisions are not influenced by any specific institution or politician, including the president. All the Federal Reserve’s generated policies are proposed by the board of directors, member banks, national banks and the 12 Federal Reserve Banks and assessed by the congress before they can be legislated. The Fed’s power comes from its mandated roles that include provision of gold and precious metals storage facility for its banks, institutions, as well as any other foreign institutions and governments. The Fed is located in Manhattan, 80 feet below street level, where it is provided tight security measures that include air, moisture, fire and burglar proof, as well as added security monitoring systems.
The Fed was founded on the 23rd of December, 1913. Its main parties are the 12 U.S Federal Reserve Banks (top financial institutions in their specific regions) and a board of directors that comprises people that are appointed by the United States of America’s president. The twelve Federal Reserve Banks are located in New York, Boston, Atlanta, Kansas City, Dallas, San Francisco, Cleveland, Philadelphia, Boston, Richmond, Minneapolis and St. Louis. Federal Reserve is entrusted with the task of influencing financial policies in the US, supervising banking institutions’ practices and providing physical storage of gold for internal and foreign institutions.
Federal Reserve’s revenue
Like any other financial institution, the Fed’s revenue comes from various sources. First, the revenue is generated from the physical gold storage fees this bank charges gold owners (other governments, the 12 Federal Reserve Banks and commercial banks). Second, its revenue also comes from the interest it charges banks and other financial institutions on the funds they borrow. Third, the Fed revenue is generated from the interest charged on its open market operation’s-acquired securities.
Distribution of Federal Reserve’s revenue
The first and foremost distribution of the revenue earned by the Fed is given to member banks. These member banks receive the funds as dividends of 6% of the initial investment each bank made into the Fed. The rest of the revenue goes to the U.S government. The government uses it share of the funds to fund various projects that include job creation, education, social welfare and other projects.
Gold is one of the most sought precious metals in the world today. This is because it is durable, pricey (holds more value than silver) and more liquid than platinum and palladium. It is also available in many forms including coins, numismatics, bars and bullion, not to mention there are many gold items (cutlery, jewelry, antiques and utensils) that circulate around the world.
Why gold investment?
Most world economies have, at one time or another, found themselves in massive debts with other countries or with the World Bank; a factor that almost crippled these economies. Economic dips lowers the value of a country’s currency; making traditional and cash-valued assets almost too expensive to acquire. Natural calamities destroy physical and other assets, thereby losing investors millions of funds, whereas currency inflation reduces its purchasing power. All the above factors have made traditional investments the least desirable investment, and people result to investing tangible gold. Tangible gold, available in limited supply, can never be in excess supply (inflated), and it is not destructible by water, fire or other elements that affect most traditional assets. Again, gold seems to perform in an opposite direction to the performance of currencies, hence can be used as a store of value.
The role of Federal Reserve in Gold investment
As aforementioned, one of the Federal Reserve’s task is to provide the U.S Federal Reserve Banks, commercial banks, some U.S institutions and foreign governments a safe and secure storage facility of their gold. The Federal Reserve stores physical gold worth billions of dollars for many governments. It is, thus, to be noted that this bank does not own the gold it stores, but rather provides gold storage for other entities.
As more and more governments and institutions trade their cash for physical gold, and people result in gold investment to secure their future, the need for protected gold storage arises. Safe and secure gold storage facilities, whether for small quantities (such as from a commercial bank) or large quantities (such as a Federal Reserve Bank owns) guarantees access to that gold if and when needed. Governments and banking institutions, thus, feel the need to tighten the security measures of their gold storage by sending to the Federal Reserve, which has extremely tight security and safety measures.
Federal Reserve: Manning of Vaults
In addition to the Federal Reserve holding physical gold for governments and commercial banks, it also acts as a vault-storage provider for gold dealers or companies that claim to provide storage facilities for physical gold owned by their clients. For instance, a company such as Regal Assets, which provides a safe and secure vault for its client’s gold storage, might outsource the gold storage facilities from the Federal Reserve for any number of reasons. Some of the reasons may include its lack of enhanced storage security (such as that of the Federal Reserve) and lack of enough space to store its clients’ physical gold. This (absence of gold storage space for authorized gold custodians) can occur as people rapidly invest in physical gold, especially for their IRA, which must be stored in third party, approved depositories.
The world’s most powerful institution, the Federal Reserve, is located in Manhattan, New York, U.S. Founded in 1913, the Fed was established with the aim providing a financial system that would hedge against a collapse of the economy, as well as the creation of jobs. Today, the Fed does more than create jobs or formulate financial/ banking policies. This institution provides foreign institutions, the 12 U.S Federal Reserve Banks, U.S commercial banks and other U.S financial institutions a physical, safe and secure storage of their physical gold and hard cash. This gold storage vaults has tight security that prevents the loss or destruction of the gold; ensuring its availability if and when the gold owning institution decide to access that gold.