What does Trump's "gold value reassessment" mean? Bank of America: QE without the name of QE?

Recently, the statement by Trump's new Treasury Secretary Scott Bessent regarding "monetizing U.S. industrial assets within the next 12 months" has caused a stir in the financial markets.

The atmosphere on Wall Street is becoming increasingly tense. Analysts believe that if the U.S. gold reserves are assessed at current market values, it could inject up to $750 billion into the Treasury. Does this indicate a change in the Federal Reserve's monetary policy?

Recently, Mark Cabana, head of U.S. interest rate strategy at Bank of America, stated that the impact of gold revaluation on the Federal Reserve's balance sheet is similar to quantitative easing (QE), but this is a "QE by another name," allowing the Federal Reserve to transfer nearly $700 billion to the Treasury without actual operations.

Bank of America believes that while gold revaluation is possible, there are legal issues, and it "may not be well received by the market as it would lead to a loosening of fiscal and monetary policy, as well as an erosion of fiscal/monetary independence." Additionally, the revaluation of gold would also drive up the prices of gold (as well as Bitcoin and other assets that may be re-monetized).

Gold Revaluation: Dual Easing of Fiscal and Monetary Policy

The revaluation of gold will have a significant impact on the balance sheets of the U.S. Treasury and the Federal Reserve.

For the U.S. Treasury, assets will increase with the revalued gold value, while liabilities will increase with the scale of gold certificates issued to the Federal Reserve. For the Federal Reserve, assets will increase with the value of gold certificates, while liabilities will increase with the cash in the Treasury General Account (TGA).

Cabana pointed out that the impact of gold revaluation on the Federal Reserve's balance sheet is similar to quantitative easing (QE), but without the need for open market purchases; the growth of the Federal Reserve's liabilities will initially be reflected in the TGA. In other words, this is a "QE by another name," allowing the Federal Reserve to transfer nearly $700 billion to the Treasury without actual operations.

From a net effect perspective, the revaluation of gold will increase the balance sheets of the U.S. Treasury and the Federal Reserve, allowing the TGA to be used for the Treasury's priorities (such as establishing a sovereign wealth fund, repaying debt, financing deficits, etc.). Meanwhile, the Federal Reserve and the Treasury could create approximately $700 billion in funds for various expenditures out of thin air.

The revaluation of gold will be viewed by the market as an unorthodox approach. Cabana believes that gold revaluation could stimulate macroeconomic activity, increase inflation risks, and inject excess cash into the banking system. Essentially, gold revaluation will simultaneously loosen fiscal and monetary policy.

Bank of America believes that while gold revaluation is possible, there are legal issues, and it "may not be well received by the market as it would lead to a loosening of fiscal and monetary policy, as well as an erosion of fiscal/monetary independence." ** In addition, the revaluation of gold will also drive up the prices of gold (as well as Bitcoin and other assets that may be re-monetized).

Bank of America: Three Potential Ways of Asset Monetization

In the face of market concerns about the revaluation of gold, Cabana also analyzed the possibility of asset monetization by the U.S. government.

Cabana pointed out that the U.S. government's balance sheet is different from that of corporations or households, with a significant gap between its assets ($5.7 trillion) and liabilities ($45.5 trillion). The U.S. Treasury stated that this gap does not include the financial value of sovereign powers such as taxation, regulatory business, and monetary policy, as well as the value of non-operational resources (such as national and natural resources) owned by the government as a manager.

Wall Street Insight previously mentioned that Cabana believes there are three possible avenues for achieving the "asset monetization" mentioned by Bessent:

1. PP&E (Property, Plant, and Equipment) Assets: The U.S. government owns over $1.3 trillion in PP&E assets, most of which are tangible assets like land. The Department of Defense holds about 64.7% of this share. Although selling PP&E assets could generate cash, the possibility of this approach is low due to national security factors, the presence of the Department of Defense, and the need for Congressional involvement.
2. Shares of Fannie Mae and Freddie Mac: The U.S. government holds shares in these two government-sponsored enterprises (GSEs), valued at approximately $339 billion at the end of fiscal year 2024. Privatizing these two companies could raise funds, but this would take more than a year, which does not align with the timeline mentioned by Bessent.
3. Gold Revaluation: This is the most closely watched method by the market. According to the latest financial statements from the U.S. government, the value of its gold and silver holdings is $11.1 billion, based on the statutory price of $42.22 per ounce established when President Nixon severed the last link between the dollar and gold in 1973. If calculated at market prices for 2024, the value of this gold would reach $688 billion, meaning the U.S. Treasury's assets would increase by $677 billion.

Despite the rising speculation and analysis regarding the revaluation of gold, Bank of America remains conservative about the probability of asset monetization, expecting that this transformation will not happen quickly before Bessent provides clearer details. However, considering Trump's decisive and bold approach during crises, gold may face an upward trend in value, with its price hovering near the high of $3,000