Does the Government Track Gold Purchases?

• The sale of physical gold by governments around the world is an important source of demand.
• Typically, countries turn their bullion reserves into cash, but occasionally they buy gold bullion and store it in vaults.
• Official government gold auctions are held in London, where 110.5 metric tons of gold are traded each year.

Gold is an attractive metal for investors who want to hedge against inflation or protect their wealth from potential geopolitical turmoil. Around the world, governments often buy gold bullion for investment purposes. Most government gold purchases occur between January and April of each year, coinciding with official gold auctions held in London.

The Gold Standard

A gold standard is an economic system in which a country’s currency is pegged to the value of gold, as opposed to paper currency. A gold standard would set the value of one dollar equal to one ounce of gold.
Gold standard systems were commonly used in the United States during the late 1800s and early 1900s. Gold-standard advocates believed that holding gold was the best way to preserve wealth. This made gold a very attractive commodity, and the demand for gold increased.
As more investors demanded gold, the government would have to increase the supply of gold to maintain its value. This drove gold prices higher, which increased the wealth of those who owned gold.

Gold for Dollars

This chart illustrates that since 1971, the Federal Reserve has purchased billions of dollars worth of gold as well as gold-backed securities. Up until 1987, when Ronald Reagan removed the “gold window”, the Fed was permitted to purchase gold. After Reagan’s decision, the Fed could no longer buy gold, but was allowed to hold gold-collateralized securities.
While the Fed’s gold holdings have long been a source of confusion, as of April 2021, the Fed still owned 7,771 metric tons of gold, or just under 8% of the world’s total supply of gold.

Gold for Food

The U.S. government does not keep a record of gold purchases. However, one conclusion can be drawn from the available data. According to Bloomberg Businessweek, in 2008, the U.S. purchased 261.3 metric tons of gold in the third quarter, approximately 11.8% of total world production at that time.
This purchase figure can be applied annually. In 2012, the U.S. government bought 19.6 metric tons of gold, which made up 7.4% of the total gold production that year. While gold purchases from 2001 to 2012 do not account for 100 percent of gold production, they account for a significant portion of the total.
Gold for Jewelry
To calculate the amount of gold the U.S. purchased for jewelry, one only needs to look at U.S. imports. According to data compiled by Bloomberg, from 2016 to 2018, the U.S. imported 1,658 metric tons of gold.
In 2007, the U.S. purchased 1,534 metric tons of gold for jewelry, which accounted for 9.2 percent of the world’s production.

Gold for Silver

In 1933, President Roosevelt authorized the Gold Reserve Act, which allowed the U.S. government to confiscate gold from its citizens. Under the act, citizens were not allowed to sell gold, and were required to turn in their gold for the same amount of silver. This became known as gold for silver, or FDR’s own Gold Confiscation Act.
Gold certificates
In 1934, the Gold Reserve Act was amended to allow citizens to sell gold certificates, called $20.67 gold certificates, in exchange for $20.67 in silver.
In 1934, the Treasury Department issued $100.00 gold certificates, which were redeemable for gold bullion.

Paper gold certificates
In 1936, the Treasury Department issued currency-like paper certificates backed by gold purchased on the open market.

The U.S. Treasury still holds gold bullion stored at Fort Knox, Kentucky.