The Real Diehl is a column by former United States Mint Director Philip N. Diehl, exclusively for CoinWeek ………..
The public image of the United States Bullion Depository at Fort Knox, Kentucky, was cemented in the 1964 movie Goldfinger. The four-story vaults of shining chrome bar-encased gold, suspended staircases, and vast interior are now classic Hollywood images of what our imaginations want Ft. Knox to look like.
The reality is very different.
I’ve been inside, one of the few outsiders in the past 40 years. The Mint’s stated policy is, “The Depository is a classified facility. No visitors are allowed, and no exceptions are made.” Even former Presidents have been turned away. But in 1974, Mint Director Mary Brooks led 130 press Representatives and members of Congress into the Depository to debunk rumors that the vault was empty.
I remember hearing these rumors at home in Texas. Ed Busch, of WFAA radio in Dallas, fanned the flames of suspicion to great effect, finally forcing the Treasury Department to open the vault. (By the way, I’m confident the gold is there, but the idea that anyone could look at a stack of gold bars and be reassured that, in fact, “the gold is all there” is amusing.)
From the outside, the Depository appears to be a concrete, depression-era structure–nothing special, unlike the Fort Knox of Hollywood fame.
But, it IS well protected.
There are concentric rings of defenses starting with the two-story vault, itself. The vault is small, less than 4000 square feet, and two stories high. Its walls are two feet thick and constructed of concrete-encased steel plates, steel I-beams, and steel cylinders laced with hoop bands. The vault walls and roof are separated from the Depository’s outer walls and roof, which are constructed of granite-lined concrete.
The vault door is blast-, drill-, and torch-proof, 21 inches thick, and weighs in at more than 20 tons. It is set on a 100-hour time clock and is rarely opened. There’s no need. Metal is not moved in and out of the vault. The gold used in producing the Mint’s gold coins is held in the West Point Mint.
No one person can open the vault door. As with all vaults, there is an escape door for anyone who might become trapped in the vault. But you might rather wait out the 100-hour clock. The approach to the door is through a narrow tunnel one must crawl through. It opens outside the vault but inside the depository. The escape door only opens from the inside. Four armored guard boxes stand at each corner of the building and armored sentry boxes flank the entrance gate. The facility has stand-alone emergency power, water and other systems on site.
The next ring of protection is the heavily armed and highly profession members of the United States Mint Police Force who can engage intruders from inside the fortress to beyond the outer steel fence. Between the walls of the Depository and the outer perimeter lie rings of razor wire and mine fields, monitored by high-resolution, night-vision video cameras and microphones. The Depository sits on the Fort Knox Army post at the corner of Bullion Blvd. and Gold Vault Road (no kidding).
When I was director, the post offered additional protection in the form of the 194th Armored Brigade, helicopter gunships, artillery, and as I recall, 25,000 soldiers. I know that Fort Knox has gone through significant downsizing over the past decade, so I’m uncertain how much of this firepower is available today.
During my visit, I asked if anyone had been crazy enough to try to penetrate these awesome defenses. I was told that on one or two occasions, an inebriated soldier, looking for a shortcut back to base from a local bar and not knowing where he was, had attempted to climb the outer fence. You can imagine the sobering effect the floodlights, alarms, and booming speakers would have had on the unfortunate fellow.
Today, Fort Knox holds about 4600 metric tons of gold worth close to $200 billion dollars.
This represents 2.5% of all the gold ever refined—as in ever in the course of human history. During World War II, the Depository held more than four times its current holdings. But gold might not have been the most valuable asset held by the Depository. Over the years, Fort Knox has protected copies of the Gutenberg Bible, the Magna Carta, the Declaration of Independence, the U.S. Constitution, and the Gettysburg Address, among other priceless artifacts. On a grimmer note, during the Cold War, morphine and opium were stored at the Depository in case they were need in huge quantities after a nuclear exchange with the Soviet Union.
Philip N. Diehl was the 35th Director of the United States Mint and a former chief of staff of the U.S. Treasury. He has written about gold markets for The Wall Street Journal and Institutional Investor and currently serves on the boards of the Industry Council for Tangible Assets, the Coalition for Equitable Regulation and Taxation, and the Gold and Silver PAC. He was recently named president of U.S. Money Reserve.Be sure to check out Philip’s blog.
Thank you for sharing your experience and insightful description of the most famous “bank vault” in the world. It is a bit disappointing when reality pales in comparison to what our imaginations come up with sometimes.
I do have one BIG question that I hope you can answer. Since we are no longer on the gold standard and like you said, it houses such a small percentage of gold…why then do we have it???
I think it’s politics. There’s no good reason to empty the vaults at Fort Knox, and selling the gold would ignite a political firestorm.
As for the rest of the world, nations keep gold reserves for two primary reasons, the most important of which is to protect the credibility of their currencies.
Although the world long ago abandoned the gold standard, gold still maintains virtually universal confidence. So if confidence in a nation’s political or economic stability erodes, gold stands as a backstop buttressing trust in its creditworthiness.
Germany’s decision last year to repatriate a portion of its gold reserves was driven, in part, by German public concern about the state of the euro. These concerns reached a peak as the European Union struggled with its debt crisis.
A second reason central banks hold gold is to balance their portfolios. For example, Asian central banks hold enormous reserves in dollar-denominated assets. If the dollar falls in value, the value of their reserves falls in tandem–better to diversify by spread the reserves among other assets. Gold has been central bankers’ asset-of-choice as an alternative to the dollar, and today, when the dollar falls, gold usually rises.
This is one reason I think gold will enter another bull run. As I said, the Asian reserves are huge, the vast majority of which is held in dollars. They have strong incentives to diversify their portfolios, and gold is really their only alternative.
This is already occurring, will continue, and will accelerate if the dollar begins a sustained fall. But it will proceed at a moderate pace over years in order to prevent a rapid move out of dollars from causing a tailspin in the value of the Asian bank reserves.
I think central bank demand will drive gold prices for years to come.
Is it true that the gold that was confiscated from American citizens by FDR’s government is stored at Fort Knox?
Before I answer your question, let’s discuss FDR’s confiscation of Americans’ gold.
First, “confiscation” implies seizure without compensation. While FDR’s Executive Order 6102 required much of the nation’s gold to be surrender to the Treasury, it also provided for owners to be compensated. One might argue whether or not the price paid by the government was too low, and I haven’t looked into the question closely enough to have an opinion, but in the vast majority of cases, the gold was voluntarily surrendered by the public, not confiscated.
An urban myth has gained credence over the years that the IRS executed a nationwide search of safe deposit boxes as part of the government’s “confiscation policy”, and the myth is supposedly supported by the text of an Executive Order signed by FDR. This document is fraudulent. Most of its text does not appear in the actual Executive Order.
However, there were a few cases in which gold was, in fact, confiscated (without compensation). As far as I’ve been able to determine, all of these confiscations came as a result of criminal prosecutions of people who failed to surrender gold or had otherwise violated federal law.
There was no widespread prosecution of individuals who simply owed gold. What cases were brought by the government were typically against gold traders, dealers, and companies that failed to surrender large quantities of gold.
For example, the first case I can find was brought against an individual who tried to withdraw from his bank 5000 ounces of gold, worth $6.5 million at today’s price. In the depths of the Great Depression, this was an enormous stash, even at 1933 prices. Since the withdrawal request had to be processed by his bank, and the bank was required by law to report such transactions, he was greeted at the bank by federal agents. Clearly, he hadn’t thought it all the way through.
Another example: The government confiscated double eagle worth $12.5 million ($812 million at today’s price) that a Swiss company had placed in the hands of an American business for safekeeping. I assume they fired their attorney.
There are other examples I could cite, but the point is that individual gold owners were not subject to search and uncompensated seizure of their gold or the heavy hand of federal law enforcement. If your gold was confiscated, your violation of federal law was probably pretty flagrant and poorly executed.
Two final points: Contrary to conventional wisdom today, not all gold was subject to E.O. 6102. Gold coins with collector or numismatic value were exempt as was gold used in manufacturing, dentistry, and jewelry production. Moreover, each person in a household could retain up to five troy ounces of gold coins.
As far as I can determine, only one person was prosecuted under E.O. 6102, and he was acquitted. Most prosecutions were brought, not under FDR’s Executive Order, but under an Act of Congress, the Gold Reserve Act of 1934. The constitutionality of E.O 6102 and the Gold Reserve Act was ultimately upheld by the Supreme Court.
Now, to answer your question. Gold that was voluntarily surrendered to the government under E.O. 6102 and the Gold Reserve Act of 1934, and gold that was confiscated as a result of criminal prosecutions under the Order and the Act, was melted into bar form, and that gold is included in the reserves held at Fort Knox.
I live near Fort Knox and I have one question: If the outer ring is a mine field how is the grass always perfectly mowed? In the years I lived and worked in and around Fort Knox I’ve never seen anyone mowing the lawn, yet it must be real, it changes with the seasons.
HA! That’s a darn good question. My impulse is to say “very carefully”. I’ll see if I can get you a better answer.
Don’t forget this is the largest national gold reserve held by any country in the world.