US Treasury-Owned Gold – What Would 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
Summary Fine Troy Ounces Book 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, American Express and McDonalds
• 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.

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