U.S. Treasury Owned Gold: What Can It Buy?

Some Thoughts On The Value Of US Owned Gold

The United States Treasury Department recently issued a report on the total amount of US Treasury-Owned Gold. As of April 30, 2009 the US Treasury held a total of 261.5 million fine troy ounces of gold. The Treasury report uses a book value of $42.22 per troy ounce to calculate the total value of gold held at approximately $11 billion. Based on the current market price, total gold holdings of the US Treasury amount to approximately $238.5 billion.

Department of the Treasury
Financial Management Service
STATUS REPORT OF U.S. TREASURY-OWNED GOLD
April 30, 2009
SummaryFine Troy OuncesBook Value

Summary	Fine Troy Ounces	Book Value
Gold Bullion	258,641,851.485	$10,920,427,976.14
Gold Coins, Blanks, Miscellaneous	2,857,047.831	120,630,844.95
Total - Treasury-Owned Gold	261,498,899.316	$11,041,058,821.09

It is interesting to note that although the US dollar used to be a gold-linked currency, the current market value of gold held by the US Treasury is now nothing more than pocket change on the Federal balance sheet. In today’s new financial world, here’s a short list of what the U.S. government could buy with the entire U.S. gold stockpile of $238 billion.

• cover the interest due on $9 trillion of government debt for one year.
• buy General Electric (GE), American Express (AXP) and McDonald's (MCD)
• cover 40% of the $599 billion in bank losses expected by the US Government over the next year
• pay for 6.6% of next year’s $3.6 trillion dollar US spending budget
• cover less than half the cost of the TARP program
• pay for 35% of the 2010 U.S. defense budget
• cover less than two years of war costs in Iraq and Afghanistan
• cover the cost of a stimulus check of around $800 for each American

The value of the nation’s gold supply is a rounding error on the Federal balance sheet and irrelevant to overall governmental finances. Maintaining a stockpile of gold as a store of value to back a nation’s financial system seems little more than a relic of past history. Citi commodity analyst Alan Heap recently stated that gold is “a crowded trade and fundamentals are not supportive”.

All of the above factors would seem to represent a contrarian dream. As the economies of the world continue to create trillions of new paper money, gold appears to be on the cusp of a multi year price breakout above $1,000 and the K-Ratio is still screaming to buy the gold stocks. In addition, China is calling for the establishment of a new gold linked reserve currency and the approximate market value of the fifteen biggest gold producers is only $135 billion.

Adding to gold stocks at this point as part of a diversified investment portfolio would seem to carry a good risk / reward ratio. The time to sell gold will be when there is a “crowded trade” in analysts telling us to buy.

Although Kinross Gold (KGC), Goldcorp (GG) and Randgold (GOLD) have all appreciated since last discussed, these are my favorite long term gold stock positions and merit additional purchases on price pullbacks. Newmont Mining (NEM) and Yamana Gold (AUY) round out the gold stock portfolio and should also continue to perform well.

Gold Chart

Disclosures: Holding positions in KGC, GG, GOLD, AUY, NEM

Comments

[20smoney:]

Good article. I've been advocating a buy of GDX, AUY, GLD for months now at 20smoney.com

May 26 11:23 AM

[silverwood:]

Good article, your analogy of what we could purchase with our stockpile of gold serious suggest that something is askew. My bet is the price of gold is way way undervalued.

May 26 11:48 AM

[Boxed Merlot:]

-In addition, China is calling for the establishment of a new gold linked reserve currency...
Combining this with Dallas' Fed manager describing his recent "Grilling" by senior chinese officials 5/21 about his take on Washington desire / ability to fund the largess they're creating via end around control of the "Wall Street" Fed, i.e. Bernanke et al, sounds like dad's not going to give us an increase in our allowance. In fact, he may be telling us to go get a job.

May 26 12:48 PM

[ArbyH:]

The current powers that be will do everything in their power to keep gold from being seen as traditonal money, which it is. They will manipulate scarce real gold prices downward using unlimited printable paper money in paper markets. That is the only game they can play to try to maintain their advantage - smoke and mirrors.

When some suggest the game changes to non-dollar trade the US will go to war to continue the game. ie. Iraq, Iran.
When an equal power calls BS then the game will change and the US will be in deep chaos to scramble for a new game, but no one will want to play a rigged game... and we fall hard.

May 26 02:43 PM

[Dave Wrixon:]

If you think Gold is money, take some down to Walmart and see how you get on with with weekly shop.


On May 26 02:43 PM ArbyH wrote:

> The current powers that be will do everything in their power to keep
> gold from being seen as traditonal money, which it is. They will
> manipulate scarce real gold prices downward using unlimited printable
> paper money in paper markets. That is the only game they can play
> to try to maintain their advantage - smoke and mirrors.
>
> When some suggest the game changes to non-dollar trade the US will
> go to war to continue the game. ie. Iraq, Iran.
> When an equal power calls BS then the game will change and the US
> will be in deep chaos to scramble for a new game, but no one will
> want to play a rigged game... and we fall hard.

May 26 03:09 PM

[Market Sniper:]

Article totally misses the point. What is money? Simply value in exchange. Now, for anyone totally bamboozled by the fiat fairyland we find ourselves in, it should be pointed out that the so-called "balance sheets" are denominated in fiat. Simply money by government decree. We do not have a floating fiat system here, we have fiat that sinks at various rates! Full blown race to zero in competitive devalueation. History speaks very lowdly on the CONSEQUENCES for what is going on here. Think this time it is different? Well, in fact it is. This time it is planet wide. That will be a first. Ignore the iron hand of history at your own risk.

May 26 06:16 PM

[Kevin_S:]

It's almost an old man's argument. If you borrow money from bank to do business and buy home, you don't need to have enough gold at home to cover your loans and business activities. All you need is the strength of the businesses, and a few months of cash reserve.

All gold mining companies' profits combined are less than that of P&G. If you really want to own gold, own gold itself (the metal) or GLD. Gold keeps flying out of the mines, leaving you essentially nothing, quarter after quarter. Let's see where gold (metal) and miners go from here. But when things turn around, and people start moving money out of gold, it's kinda a mess.

May 27 04:14 AM

[fran:]

more illustration that the USA[we folks] is bankrupt with no plan of correction that any rational person could accept/believe.

of what value are projections of "economic recovery" unless we know from what level of problem to what level of improvement, what timeframe[span of months], and when out of bankruptcy. as individuals we'd must know. as a nation of individuals we need to know less?

May 27 08:57 AM

[Mike10613:]

Paper money is like a stock or share certificate. It promises something. On our currency in the UK, notes say We Promise to pay the Bearer the sum of five pounds ( of whatever the denomination of the note is). That refers to it's weight in gold. However, the Bank of England and therefore the Crown, doesn't deliver on that promise and hasn't done so since the abolision of the gold standard. Of course, the Bank of England doesn't have to bring back the gold standard to make paper money worth something again. It can use any liquid asset to back the currency; but gold reserves must be one of them. It can use silver, property, natural gas reserves, oil reserves, even the air we breathe as that is used to transmit radio frequency electro magnetic waves as liquid assets as well as gold.. The bank made a big mistake selling gold reserves cheaply and should start buying gold and with a wide spread. Maybe buy at $900 an ounce and sell gold sovereigns at the equivalent of $1,000 an ounce or more. It could also buy shares in ailing companies like banks at a big discount. It could raise money by increasing interest rates to realistic levels and stop robbing people of their life savings. It could in this depression scrap the tax disk on cars and add a little to petrol and diesel tax. It could scrap the television licence - these two measures would lead to greater efficiency and combined with realisitic expenditure at the BBC and funding of the BBC with public service announcements; we would see a large amount of money collected by goovernment and less being wasted. The excess could then be used to rescue the economy. With no car tax to pay or TV licence people would spend money in the shops and that alone would help lift us out of the depression; both economically and psychologically. The various agencies that are supposed to regulate the economy should be made to do so; OFGEM is a prime example that has failed miserably and led to massive increases in the price of gas and electricity because of mergers and takeovers that limit competition and encourage monopoly thinking. Politicians have no idea when it comes to understanding economics and their economists are stuck in the past reading about the great depression and trying to talk us into thinking this is a recession and everything will be fine next year! Will it hell!

May 27 01:10 PM

[DONE_SONZ:]

Dont be too surprised if the reflate and debase plan doesn't totally work, that gold's price is raised to do it.The price of gold would be huge to correct even 10% of debt.

May 27 01:10 PM

[Boxed Merlot:]

While I understand your concern about the seemingly inability to trade gold for desired weekly "purchases" at your local Walmart, I have heard it said that one can in fact use their gold on deposit as collateral against a loan, similarly to that of a debit card as "money in the bank". In that way, then yes, you could use your gold backed security to "purchase" your much desired and needed products from your local Walmart without having to use the "$5.00" US minted gold "currency" thats actually worth closer to, what?.. . $200.00???


On May 26 03:09 PM Dave Wrixon wrote:

> If you think Gold is money, take some down to Walmart and see how
> you get on with with weekly shop.

May 27 01:51 PM

[CoinMiner:]

The BIG LEAP of FAITH is making a book value of $44.22 per oz gold into $950 oz gold.

Treausry Department has not provided an audit of the gold deposits since the 1960s.

As it is, we have taken out $950 credit based upon $44.22 deposits.

The more true analysis is debt divided by verified oz gold in holdings.

The difference is "Full faith and credit"!

May 27 01:52 PM

[Westcoaster:]

Could one of you gold fans answer this for me?

If as a society starting around the 1400's Europeans relearned how to bank and have built a massive, massive, massive economy by slowly going away from first barter, then sea shells, then silver, then gold. Why in the hell would we ever drop all the way back to a system that has been being phased out over the last 600 years, a gold economy?

Wouldn't it make more sense that we would just start accepting paper money from some other issuer? Say your rich neighbor, North Dakota, the US Army, etc. Credit is a better system than gold so I don't get gold ever really being a worse case hedge. Isn't food a better scorched earth hedge?

May 27 06:21 PM

[gjg49:]

dave wrixon and westcoaster,
you are both correct that fiat money and credit are far more efficient than gold (or barter, silver, etc) to provide the transaction value of money.
however, money serves two purposes 1) to make transactions more efficient and 2) as a store of value (that is, to efficiently provide for saving or postponing current consumption to provide for current consumption. as a store of value, the recent explosion in the money supply creates considerable doubt about whether the currency will maintain anything close to the same purchasing power. if aggregate money supply doubles and all else stays the same (not always the case, but at least a sensible starting point for discussion), the value that money "stores" will be radically reduced. the so-called gold bugs assert (and i can't see any clear reason to doubt them on this) that gold will maintain some semblance of value. recently someone stated that an ounce of gold would approximately buy a man's suit in 1900 and still approximately buy's a man's suit in 2009. as a retiree, personally i am interested in maintaining or hopefully increasing the future buying power of my current wealth. how comfy should i feel that i can retain purchasing power in us government "fiat" money when bernanke seemingly is printing it 24 by 7 ??

May 27 07:42 PM

[Westcoaster:]

Gjg49,

Thank you for your response. Yes, fiat money is both about quality and quantity, its not easy to have both. Don't you worry currently more about deflation. Recall, inflation is the product of money supply times the speed in which that money is spent. You can't have inflation without a dose of both of these. Gas, homes, milk, copper, you name it are dropping. That to me is deflationary. A very scary situation. Banks go broke and everyone who is working so hard seems to expect inflation to be there to make themselves feel like they are doing more and better every year. 1-3% inflation per year is ideal for the human psyche.

The national debt. Welllllll it just seems to grow and grow and grow. Greenspan, Friedman, Bush, Reagan...all believed that it was the lesser of other evils (taxes).

May 27 11:06 PM

[TERN:]

"Based on the current market price, total gold holdings of the US Treasury amount to approximately $238.5 billion."

Yes, but if you want to see the treasury actually do something with that "reserve" like paying half of TARP, you will find that the market won't absorb 258 million ounces at anything like the current market prices.

Gold , when dumped, is just as vulnerable as T-Bonds.

That is why I prefer silver or the other precious metals: they are needed in industry and there *are* no reserves to be dumped.

May 28 06:38 AM

[gjg49:]

westcoaster,

my wife says that i worry about everything--she is probably correct. sorry, couldn't resist a bit of levity.

anyway, deflation should theoretically increase or improve the future buying power of bonds, certificates of deposit, money market funds, etc. someone paying me back in future dollars would actually be returning me more buying power in the future than i give them today (that is, with enough deflation, one dollar will buy me a pack and a half of m&ms instead of one pack today--so they would pay me back in more goods and improve the value of my savings.) from what i can tell, the buying power of TIPs probably will hold constant or improve slightly as well. as long as one gets repaid, deflation clearly benefits most holders of debt. however, serious deflation probably also increases the risk of default by virtually all debt issuers. that clearly raises my concern about deflation in regard to government and corporate debt.

under deflation, however, the future buying power of an ounce of gold and/or a certain number of shares of an equity and/or a certain property may rise or fall from the current level under deflation. the issue would be whether the prices of gold, the common stock, or the property deflated more or less than the general price level. the price of gold should be a function of the demand and supply of it; concern over inflation may be unduly raising demand currently and hence, the price could drop much more sharply than the general price index if inflation fears subside. don't take this a forecast--but take it as an acknowledgment that you might very well be correct. i think that the same probably would be true of equities and real estate.

May 28 06:27 PM