By Neils Christensen of Kitco News
(Kitco News) – In a world of negative bond yields, the state of Arizona might have a solution as it looks at how to monetize gold.
Recently, the state created a committee to look at the possibility of issuing a Treasury bond payable in gold, holding its first meeting last week.
Gold has attracted significant speculative interest so far this year as prices have rallied more than 27%. However, committee member Keith Weiner argued that gold’s current role as a speculative asset doesn’t do anything for the broader economy.
Last week, in a presentation to the committee, the founder of Monetary Metals Inc. said a government issued gold bond would not only benefit the country’s monetary system but also Arizona’s economy.
“Thanks to the Fed’s monetary policy, investors basically earn zero interest rates. A gold bond is a way for people to get a real rate of return,” Weiner said. “People are urgently seeking a way to make a yield on gold. I think Arizona will draw the world’s attention and it will draw capital inflows.”
He explained that a gold bond could be used to reduce the state’s debt by specifying that the bond will be issued to investors who want to tender outstanding state bonds. Quoting statistics from Arizona’s Treasury department, Weiner said that it is estimated that the state’s debt is currently at $10 billion, not including unfunded liabilities.
The committee, Weiner continued, doesn’t even need to rely on developing its own gold reserves before issuing a gold bond. He suggested creating the bond by using gold flows created from taxes.
Arizona is one of the top gold producing states in America and has historically produced 16 million ounces of the precious metal. Currently, gold is produced as a byproduct at significant copper projects. Some of the major companies mining in the state include BHP-Billiton and Freeport-McMoran, which both generate billions in mining revenues.
Weiner explained that under current laws, the state can actually collect taxes in gold and silver bullion. In his presentation, he recommended the state collect gold as part its severance tax of 2.5%.
“That tax can provide the state a gold income stream, which is what you need to amortize the gold bond,” he said.
“This presentation lays the foundation that we don’t have to settle with the status quo,” said Mark Finchem, Arizona State Representative and chairman of the committee.
The issuance of a gold bond is part of a larger plan within the state to recognize gold and silver tender. Legislation has been presented twice in the House of Representatives but has been vetoed by two Governors.
By Neils Christensen of Kitco News; nchristensen@kitco.com
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