The vault underneath the New York Federal Reserve once held over one quarter of the world's monetized gold. Today, it holds about 500,000 gold bars, 95% of which is owned by foreign nations. This photo, taken in 1968, shows a "sitter" counting gold.

NEW YORK (CNNMoney.com) -- Gold is soaring to record high prices, and guess who has the biggest stash?

The U.S. government.

The Treasury Department has 261.5 million ounces of gold in its reserves, representing about a third of the gold stockpiles held by governments around the world. With gold selling at about $1,100 an ounce, that means Uncle Sam is sitting on $288 billion worth of the shiny stuff.

Treasury's gold sits in vaults across the country. It holds about 25,000 bars in a vault five floors down, 80 feet below street level, in the New York Federal Reserve in Manhattan. The majority of the nation's gold reserves still reside in Ft. Knox in Kentucky.

But rather than sell it, the government is hanging onto its bullion.

So are other global central banks. In fact, as the dollar continues its downward spiral, many countries are even buying up gold.

Last week, the International Monetary Fund offered up 400 metric tons of gold, and the Reserve Bank of India bought 220 metric tons of it. Sri Lanka bought 5.3 metric tons in the auction as well. In the second quarter, central banks were net buyers of gold for the first time since 1997.

"Gold is gold," said Nathan Lewis, author of Gold: The Once and Future Money. "There's no real change in gold's value. Only the value of paper currency declines."

Gold has come in and out of fashion with investors over the years. In times of economic instability or inflation, gold demand and prices have trended higher. Despite wild price fluctuations over the years, gold has maintained its purchasing power for about the past 750 years.

"From the mid-14th century until now, you can draw a relative straight line in the purchasing power of gold, and every central banker in their heart knows that," said Judy Shelton, an economist and director of the National Endowment for Democracy. "Gold is universally recognized as a store of value. That's important because it denotes price stability."

Gold had been the standard currency for international trade for centuries. In fact, the Federal Reserve vault in New York has compartments for different countries. When one country would trade with another, a "sitter" would simply move bars from one compartment to another, according to David Girardin, spokesman for the New York Fed.

Gold's inherent value is buoying its resurgence in popularity. The comeback also raises important questions about the United States' own reserve position and the government's ability to maintain demand for U.S. Treasury bonds as the world catches the gold bug.

Why we're sitting on it

Governments' dependence on gold has waned over the years, but they still hold 848 million ounces of it, down 29% from the 1965 peak of 1.2 billion ounces, and just 10% from the 942 million ounces they held 50 years ago, according to the World Gold Council.

Curiously, Treasury still values its gold at $42.22 per ounce. Congress reached that figure in 1973, two years after the the post-World War II Bretton Woods gold standard, which had valued gold at $35 an ounce, was scrapped.

With gold selling at prices 26 times that amount, why doesn't the Treasury, and by extension, the Fed, realize those gains on their balance sheets by displaying the market value of their holdings? Or, with the gold standard abandoned, why doesn't the government sell off its reserves to put that money into the economy or pay off debt?

There are lots of reasons, ranging from the psychological to the practical.

"If we started selling gold from our official reserves, it would be recognized as a sign of weakness for the dollar," said Jeffrey Nichols, managing director of American Precious Metals Advisors and senior economic advisor to Rosland Capital. "America's relatively large gold holdings provide some psychological benefit to our currency."

Many gold experts and economists agreed that even though the gold standard has been abandoned for nearly 40 years, the world is still cleaving to its gold because it is a tangible asset.

Another reason for Treasury to hold tight is gold's fluctuating price. Just ask British Prime Minister Gordon Brown. When Brown was the nation's chief finance minister a decade ago, he decided that gold had become relatively useless to the government -- without the gold standard, it was just an inert metal, and it was expensive to store.

Brown sold off 400 tons, or 60% of the United Kingdom's gold, between 1999 and 2002. Brown's problem: Gold was selling at a record low inflation-adjusted average of $275 an ounce at the time. It turned out, had he waited 10 years, the U.K. would have made four times what it hauled in from the sale.

"Geithner doesn't want to be the Treasury secretary that sells gold at $1,100 an ounce and next year it's at $2,000," said Shelton.

Furthermore, a sale of all the country's gold wouldn't make much of an impact. With the nation's annual deficit at $1.7 trillion, a $787 billion stimulus package and a $700 billion bank bailout, $300 billion is kind of puny in comparison.

"The Fed has plenty of tools to pump money into the economy; it doesn't need to sell gold to do it," said Lyle Gramley, a former Fed governor. "The government has its gold by historic accident, but there's no reason why they'd sell it -- there's no motivation."

But most of all, a sale of the government's gold would be especially poorly timed now, since foreign central banks are lining up to add gold to their reserves. As a result, experts say a mass-sale of gold would mostly end up in other nation's coffers.

That could spell disaster for the U.S. government, which is trying to finance its economic rescue packages by selling record amounts of debt to foreign countries in the form of Treasury securities. As gold holdings take up a larger percentage of foreign reserves, Treasury holdings could be reduced.

Shelton, who believes that paper currency should have ties to hard assets, said the resurgence of gold buying should be unsettling for the government. The trend indicates that some foreign countries would rather hold onto an inert metal than Treasurys that pay interest. Treasurys have long been viewed as a riskless asset, because they are tied to the dollar and are backed by the U.S. government.

"If the trend continues, that could reduce the demand for Treasury securities and bonds' book value would go down," said Shelton.