I know the US treasury is slowly selling its gold reserves, but what is the actual mission and purpose when it comes to the holdings?
What is the reasoning behind the slow rate of liquidation? I have even heard "tradition" and "propping up confidence" as reasons. Tradition doesn't feel like more than an excuse. Confidence or creditworthiness should stem from the expected performance of the US economy and tax collected on that activity, since treasury securities are not backed by gold.
I guess it is for the same reason that other countries hold foreign reserves. The argument is that for some reason foreign markets become suddenly very adverse to take your currency, you should have some other medium of exchange that allow you to finance imports or serve short term external debt. This is very related to the Guidotti–Greenspan rule.
It's a holdover from the old Gold Standards. Gold standard regulation required all banks, including the central bank to hold gold as a regulatory asset. In the last gold standard, the Bretton Woods regime, the US in particular had to hold gold to back the dollar. The requirement went away with the collapse of the Bretton Woods agreement in 1973, but the gold didn't.
These days there isn't any requirement to hold gold, and indeed some countries - notably the UK in 1999 and 2002 have sold off significant amounts of their bank holdings. (Note though, it's been suggested there were stability issues behind this sale.) Gold on the Federal Reserve's book isn't even held at market prices, it's marked to a notional statutory value of ~$42.
By the same token, there isn't any requirement not to hold it, so why sell it? There tends to be a lot of inertia in these kinds of systems.
Interestingly, an examination of central bank annual reports shows a fair amount of variation in what they use for their assets. While government debt in the form of treasuries is usually present, the Norwegian central bank holds market securities - presumably due to a lack of government debt. The Federal Reserve added securitized loans in the wake of the 2007 crash in order to stabilise their financial system.
To ask, "Why does any Treasury/Central Bank hold gold?", consider, "Why does anyone hold gold?"
Gold is a store of value with a multi-millennia track record of perceived worth. It is expected to retain its value through cataclysmic events. The value of any currency, on the other hand, is dependent of the faith of the government or authority that backs it.
It depends who you ask and which answers you believe. According to former Chairman Ben Bernanke, its because of "Tradition". However, whether that is the true reason is up for debate. Central banks have a direct interest in making gold seem less valuable, because their motivated to ensure people believe dollars (fiat/paper) is valuable. All fiat currency is constantly competing with gold for value. If everyone stopped creating money demand and started hoarding gold, the central banks would, by definition be useless and powerless. Oddly enough, while they claim it's because of tradition, they sure do hold a lot of it.
Gold, while not used as money today, is an asset class that retains it's value in the long run and is considered valuable in every corner of the globe. Central banks generally hold gold as a "reserve" and delegate a percentage of reserves based on how much paper currency they issue. Additionally, gold is an inflation hedge, so Governments and banks don't suffer as much from the very currency they issue themselves.
Prior to Alan Greenspan becoming Chairman of the Fed, he wrote a fascinating paper about Gold called: "Gold and Economic Freedom" (1966). As one of the most powerful people in the world, this is surely a good read.
