“Geithner doesn’t want to be the Treasury secretary that sells gold at $1,100 an ounce and next year it’s at $2,000,” said Shelton.
Furthermore, a sale of all the country’s gold wouldn’t make much of an impact. With the nation’s annual deficit at $1.7 trillion, a $787 billion stimulus package and a $700 billion bank bailout, $300 billion is kind of puny in comparison.”
The government holds the world’s largest gold reserve, but even with gold prices at a record high, the Treasury is unlikely to sell.
by David Goldman, 11/12/09
NEW YORK (CNNMoney.com) — Gold is soaring to record high prices, and guess who has the biggest stash?
The U.S. government.
The Treasury Department has 261.5 million ounces of gold in its reserves, representing about a third of the gold stockpiles held by governments around the world. With gold selling at about $1,100 an ounce, that means Uncle Sam is sitting on $288 billion worth of the shiny stuff.
Treasury’s gold sits in vaults across the country. There are about 25,000 bars held five floors down, 80 feet below street level, in the New York Federal Reserve in Manhattan. The majority of the nation’s gold reserves still reside in Ft. Knox in Kentucky.
But rather than sell it, the government is hanging onto its bullion.
So are other global central banks. In fact, as the dollar continues its downward spiral, many countries are even buying up gold.
Last week, the International Monetary Fund offered up 400 tons of gold, and the Reserve Bank of India bought 220 tons of it. Sri Lanka bought 5.3 tons in the auction as well. In the second quarter, central banks were net buyers of gold for the first time since 1997.
“Gold is gold,” said Nathan Lewis, author of Gold: The Once and Future Money. “There’s no real change in gold’s value. Only the value of paper currency declines.”
Gold has come in and out of fashion with investors over the years. In times of economic instability or inflation, gold demand and prices have trended higher. Despite wild price fluctuations over the years, gold has maintained its purchasing power for about the past 750 years.
“From the mid-14th century until now, you can draw a relative straight line in the purchasing power of gold, and every central banker in their heart knows that,” said Judy Shelton, an economist and director of the National Endowment for Democracy. “Gold is universally recognized as a store of value. That’s important because it denotes price stability.”
Gold had been the standard currency for international trade for centuries. In fact, the Federal Reserve vault in New York has compartments for different countries. When one country would trade with another, a “sitter” would simply move bars from one compartment to another, according to David Girardin, spokesman for the New York Fed.
Gold’s inherent value is buoying its resurgence in popularity. The comeback also raises important questions about the United States’ own reserve position and the government’s ability to maintain demand for U.S. Treasury bonds as the world catches the gold bug.
Why we’re sitting on it
Governments’ dependence on gold has waned over the years, but they still hold 848 million ounces of it, down 29% from the 1965 peak of 1.2 billion ounces, and just 10% from the 942 million ounces they held 50 years ago, according to the World Gold Council.
Curiously, Treasury still values its gold at $42.22 per ounce. Congress reached that figure in 1973, two years after the the post-World War II Bretton Woods gold standard, which had valued gold at $35 an ounce, was scrapped.
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