Dollar’s Gold Backing Drops With Metal’s Price: Chart of the Day

Gold’s backing for the dollar fell as the precious metal’s price slumped this year and more declines may be in store, according to Richard X. Bove, an analyst at Rochdale Securities LLC.

The CHART OF THE DAY compares the market value of the U.S. Treasury’s gold holdings with the M2 gauge of money supply for each year since 1959, as Bove did in a report yesterday.

The Treasury owned metal valued at 4.12 cents for every dollar of M2 as of yesterday, down from 4.25 cents at the end of last year. M2 consists of cash, bank deposits and money-market fund assets. The ratio surpassed an average of 3.4 cents for the 53-year period, as cited in the report.

“These numbers would tend to suggest that the price is closer to a top, in dollar terms, than a bottom,” wrote Bove, who is based in Lutz, Florida. Gold for immediate delivery was 0.6 percent lower for the year after erasing a 14 percent gain through Feb. 28. It’s headed for a fourth consecutive monthly loss, the longest streak since 1999.

Treasury holdings of gold have climbed from a 2001 low of 1.3 cents for each dollar, according to year-end data based on market prices. The precious metal rose each year, producing a more than fivefold gain. The advance exceeded M2’s 82 percent growth for the period, as compiled by the Federal Reserve.

The government owns 261.5 million ounces of the metal, including 13.4 million that are stored at the Fed’s New York branch, according to the Treasury. The rest is held mainly at Fort Knox, Kentucky; West Point, New York; and Denver. These holdings are valued at $42.2222 an ounce by law.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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