Gold: Uses of U.S. Official Holdings
April 22, 2002
CRS Report for Congress
Received through the CRS Web
Gold: Uses of U.S. Official Holdings
Craig K. Elwell
Specialist in Macroeconomics
Government and Finance Division
For centuries nations have accumulated gold as a symbol of wealth and power. Gold
was once also of practical value as a medium of exchange and until recent times provided
a commodity backing to most paper currency. Recent decades have seen a steady erosion
of gold’s economic significance. Nevertheless, the U.S. government continues to hold
a sizable stock of gold. What is this stock used for? Although there continues to be some
confusion about the role of government agencies and other institutions with relation to
the gold stock, gold is little used. The U.S. Mint, the principal custodian of the
government’s gold holdings, engages in minor gold transactions associated with
producing and selling commemorative coins. The Federal Reserve Bank does not own
or have market transactions in gold, but it does facilitate the “monetization” of U.S. gold
holdings, through its gold certificate account. The Exchange Stabilization Fund, an
agency of the Treasury Department, no longer undertakes actions that use gold, and gold
is not used as the basis of the Treasury’s Special Drawing Rights. The “gold standard”
that established a gold backing for the dollar ceased for domestic purposes in the 1930s
and for international purposes in the 1970s. The continued willingness of the U.S.
government to hold a large underutilized stock of gold is, perhaps, best understood as
a hedge against times of severe economic crisis when paper assets could be useless. This
report will not be updated.
In early 2002 the U.S. government owned nearly 262 million fine troy ounces of
gold.1 That is about half the size of the stock held in the early post-war years. Steady
reductions through the 1950s and 1960s brought the gold stock to its current size by the
early 1970s. There has been little change in the size of U.S. gold holdings since that time.
The U.S. has the largest public holdings of gold, more than double the holdings of
Germany and the International Monetary Fund (IMF), who have the second and third
largest official gold holdings respectively.
1 A fine troy ounce is equal to about 1.097 standard ( or aviordupois) ounces. A troy ounce is
therefore heavier than a standard ounce. In this report all references to ounces are fine troy ounces.
Congressional Research Service ˜ The Library of Congress
The U.S. gold stock is managed by the U.S. Mint, a bureau of the U.S. Treasury
Department. The Mint’s gold holdings are stored at seven locations around the country.
About 94 % of the gold stock, or about 245 million ounces, is held in three “deep storage”
facilities at, Fort Knox, KY; West Point, NY; and Denver, CO. Much smaller amounts,
totaling about 9,000 ounces, are held among the mint in Philadelphia, PA, at an offsite
warehouse, and the U.S. Mint headquarters in Washington. In addition to Mint holdings,
the Federal Reserve Bank’s New York branch holds about 13 million ounces of gold for
The vast majority of the U.S. gold stock, or about 259 million ounces, is in the form
of bullion, and the remainder, or about 3 million ounces is in gold coins. By law, the U.S.
gold stock is valued on the government’s books at $42.22 per ounce, for a total value of
slightly more than $11 billion in early 2002. 2 The current free market value of the U.S.
gold stock would be about $77 billion, at a market price of gold of $300 per ounce.
Table 1. U.S. Official Gold Holdings
( At book value, in millions of dollars)
1996 1997 1998 1999 2000 2001
11,048 11,047 11,047 11,046 11,048 11,046
Source: U.S. Treasury Department
What is the U.S. Gold Stock Used For ?
The short answer is: not very much. For clarity, however, let us examine several
government operations, including some that are sometimes thought to use gold.
The U.S. Mint. If one looks at the data on gold stock holdings of the U.S. Mint,
one will see that the size of the gold stock, while generally stable, does fluctuate slightly.
This small movement occurs in a component of the U.S. gold stock called the “working
stock.” This is gold that is acquired and used to make various commemorative coins
mandated by the U.S. Congress to honor people, places, and historical events (e.g., a
recent issue commemorates the 2002 winter Olympic games).
Gold is purchased, it is transformed into coins, and the coins are sold to the public.
As these transactions occur, the gold stock will fluctuate accordingly. Fluctuations in the
“working stock” amount to only one or two million dollars each year. The U.S. Mint’s
gold holdings are audited each year by the Department of the Treasury’s Office of
2 This book value price was established in 1973. At its inception this price was a meaningless
vestige of the Bretton Woods system of international payments that had been effectively abandoned
in 1971. But it remains the accounting convention for valuing U.S. official gold.
The Federal Reserve. The Federal Reserve system owns no gold and conducts
no official transactions using gold. The Fed does hold gold for others, however. As noted
above, the Fed holds a small amount of gold for the Treasury, but it also holds a stock of
what is called “earmarked” gold that is held in custody for other official entities such as
foreign governments and central banks. Earmarked gold is all held at the New York branch
of the Fed and is not counted as part of the official U.S. gold stock. It is valued at the U.S.
official price of $42.22 and currently totals nearly $9 billion. The stock of earmarked gold
has fallen substantially in recent years.
A possible source of confusion about the Fed’s use of gold is the “gold certificate
account” on the Fed’s balance sheet, currently valued at $11.04 billion. This account
comprises certificates that have been issued to the Fed by the Treasury and each is backed
by an amount of the gold held by the Treasury. For each gold certificate issued, the Fed,
in turn, credits the Treasury’s deposit account at the Fed by an amount priced at the
statutory gold price of $42.22 per ounce. Through this intra-governmental transaction the
Treasury acquires cash backed by an otherwise idle asset. This practice is called
“monetizing” the gold stock, and occurs without the government selling or lending any
of its gold stock on the open market. Nor is ownership or control of any of the gold stock
transferred from the Treasury to the Fed. The Treasury has in effect created an intra-
governmental “mortgage” on its gold holding to gain an improved liquidity position.
Currently the U.S. gold stock is fully monetized, with the Fed’s gold certificate
account equal to the legal value of the official U.S. gold stock, or about $11 billion. If the
Treasury acquires more gold, then more gold certificates could be issued. If gold holdings
fall, the Treasury must redeem an equal value of gold certificates from the Fed, reducing
the Treasury’s deposit at the central bank. If the rule for valuing the gold holdings changes
(e.g., an increase in the official $42.22 price), so could the level of gold certificates.
Because the gold stock does not exhibit much fluctuation in volume or value, neither
does the Fed’s gold certificate account. This is the Fed’s only operational link to the gold
stock and it does not involve any market transaction in gold.
The Exchange Stabilization Fund. The Exchange Stabilization Fund (ESF) is
an agency of the U.S. Treasury created in 1934 to stabilize the exchange value of the
dollar on world markets. In recent years the ESF has also been used to fund foreign
economic support programs. The resources of the ESF include dollar denominated assets
(e.g., cash and Treasury securities), assets denominated in foreign currencies (e.g., Euro
and Yen), and special drawing rights (SDR). It uses these assets to buy and sell in foreign
exchange markets with the intent of influencing the dollar and other currencies’
international exchange value. Over its history the ESF has dealt in gold, but has not owned
or transacted in gold since 1978.
A possible source of confusion over the ESF’s connection to gold is the use of the
SDR holdings. The SDR is an artificial international reserve asset that was created by the
International Monetary Fund (IMF) in 1969, and allocated to each member to supplement
its international reserves. The value of the SDR was once based on the price of gold, but
is now determined in reference to a basket of international currencies. While the SDR was
at one time referred to as “paper gold,” it does not represent any claim on gold held by the
IMF or any of its members. By law the ESF is the holder of the U.S. allocation of SDRs.
In practice the U.S. has little need for the SDR to settle its international payments, but it
does make use of its SDR assets by transforming them into a more liquid and more useable
In a maneuver similar to the Treasury’s use of its gold holdings, the ESF has a
relationship with the Fed that allows it to monetize its SDR assets. In an amount up to the
current dollar value of the SDR holdings, the ESF can issue to the Fed an SDR certificate
that is a claim against the SDR assets. The Fed, in turn, transfers to the ESF a dollar
denominated asset ( e.g., cash or Treasury securities ) which the ESF can spend more
readily in its foreign exchange dealings. SDR certificates will then appear as an asset on
the Fed’s balance sheet, but as a liability on the ESF’s balance sheet.
The ESF’s use of this arrangement increases and decreases with its need for dollar
denominated assets. If the need for such assets falls, the ESF will buy the SDR certificates
back from the Fed, exchanging cash or Treasury securities for the SDR certificate. In the
mid 1990s the ESF had fully monetized its SDR holdings, generating an SDR certificate
account worth about $9.2 billion. In recent years, however, with few liquidity problems,
the ESF has moved to reduce its SDR certificate obligations, steadily buying those
certificates back from the Fed, bringing the account balance down to $2.2 billion in 2001.
The Fed, in turn, has received an inflow of cash and Treasury securities and an outflow of
SDR certificates. These transactions are purely internal to the U.S. government, do not
affect any private market, and do not involve any transactions in gold.
The Gold Standard. The current U.S. monetary system is based on the use of
paper money that is backed only by the “full faith and credit” of the federal government.
This so called “fiat” currency is not valued in or convertible to gold or any other precious
commodity. This has not always been the case. Over most of its history the U.S. has been
on some type of metallic standard. Paper money proliferated under these metallic
standards, but was most often valued and redeemable in some amount of gold or silver.
By 1879 a true gold standard emerged, in which the U.S. currency was effectively valued
and convertible exclusively in terms of gold. The Gold Standard Act of 1900 marked the
official adoption of a gold standard, valuing the currency at $20.67 per ounce of gold.3
The pure gold standard ended with the Great Depression. In 1933 the federal
government faced a severe banking crisis with a high risk of widespread runs on banks
and, in turn, on the gold stock. Another economic problem needing resolution at this time
was that adherence to the gold standard for international payments precluded pursuing the
policy of strong monetary stimulus that the economy needed to help break the grip of
economic depression. Monetary stimulus lowers interest rates and this would tend to
accelerate the export of gold as investors look for higher yields abroad. In addition, the
creation of more currency would tend to undermine confidence in the convertibility of
dollars into gold. Together these forces would make it more difficult to maintain the dollar
3 An act to define and fix the standard of value , to maintain the parity of all forms of money
issued or coined by the United states, to refund the public debt, and for other purposes, 301 Stat.
at its legal gold value. Maintaining the gold standard imparted a strong contractionary bias
to domestic economic policy.
What emerged in 1934 was what has been called a “quasi’ gold standard. The dollar
was devalued in its gold content to $35 per ounce. This devaluation in the gold value of
the dollar gave the Fed some room for applying monetary stimulus to the struggling
economy. However, convertibility into gold applied only for official international
transactions. Domestic convertibility was ended and ownership of all gold bullion and coin
was vested in the Treasury Secretary.4
This quasi gold standard endured into the 1970s. In practice only limited amounts
of gold were transferred under this system, since countries largely relied on currencies that
were readily convertible into foreign exchange to settle payment balances. In the post-
World War II era of rapidly expanding international trade, the currency of choice was
most often the dollar. However, U.S. economic policies over this period led to such a
substantial accumulation of foreign holdings of dollars that confidence in convertibility to
gold at the legal par value was ultimately undermined. The U.S. government steadily
moved away from redeeming dollars for gold in international transactions. Attempts to
reconstitute this system failed. In early 1973 the Treasury devalued the dollar to $42.22
per ounce, but no attempt was made to maintain the new parity and the dollar was left to
float in its international value as it continues to do today. In 1975 citizens were again
allowed to own gold. In 1976 the government officially removed the definition of the
dollar in terms of gold from statute5.
For the last 30 years the public gold stock has not played any important role in the
domestic or international monetary affairs of the nation. Events had steadily pushed the
government to the realization that tying the currency to gold had proved to be a significant
impediment to providing the liquidity a growing economy needed and exposed the
economy to periodic crises. Moreover it was becoming clear that maintaining stable
monetary conditions (i.e., keeping inflation low) did not hinge on a linking of the
currency to gold.
Gold, while not actively used as a monetary medium, does remain a significant
reserve asset for the United States (particularly if valued at the much higher market price).
However, the U.S. has shown no inclination to substantially increase or decrease its gold
holdings over the last 30 years. In the mid-1990s several European governments did sell
off some of their gold holdings in an effort, as they saw it, to make better use of an
underutilized asset. But this practice largely ended in 1999 when most major central banks
agreed to limit gold sales to no more than 400 tons per year for the five years ending in
4 Gold Reserve Act of 1934, 48 Stat. 337, January 1934.
5 An Act to provide for amendment of the “Bretton Woods Agreement Act,” 90 Stat. 2660,
2004. That agreement is also a re-affirmation by these nations of an on-going commitment
to holding sizable reserves of gold.6
Why continue to hold an asset that would not seem to be earning the highest possible
financial return? One can conjecture that most nations still see gold as the ultimate form
of payment and therefore holding significant amounts of gold will continue as a last-ditch
hedge against economic catastrophe. In times of severe crisis fiat money could be
shunned, while gold is always likely to be accepted.
6 An agreement reached in Washington D.C. by the European Central Bank and the central banks
of 14 European countries on September 26, 1999.