Canada's gold reserve sell-off makes sense: experts

CALGARY -- Canada may be a global outlier when it comes to its sell-off of gold.

But to Ian Lee, a professor at Carleton University's Sprott School of Business, the decision marks the end of an era that doesn't fit into today's financial system.

See Full Article

"Why did they sell the gold? To convert it into cash, which is liquid," said Lee. "Bullion is not liquid. It sits down in the basement and collects dust."

The country's holdings in the precious metal peaked in 1965 at 1,023 tonnes or about 32.9 million ounces, according to the World Gold Council. But in recent years, gold has lost its lustre for the federal government, which on Thursday announced it was left with 77 ounces in official reserves -- less than a quarter the size of a gold bar.

Lee said countries previously measured their wealth by the amount of gold they had, and currencies were fixed to the price of gold. Those days are long gone.

Today the world relies on much more efficient floating exchange rates to balance the value of currencies, and wealth is measured in productivity, said Lee.

"The idea that that's the productive wealth of Canada, in the number of yellow bricks it owns, is just so preposterous."

With the United States abandoning the gold standard in 1933 and then fully severing ties between the dollar and gold in 1971, Lee says bullion no longer holds sway on global finances.

"That was it for gold," said Lee. "From that point on, gold became a member of an asset class, a heavily traded asset class, but it was no longer an instrument of monetary policy."

But those reasons haven't stopped governments around the world from holding vast quantities of gold, with the U.S. currently sitting on 261.5 million ounces, Germany with 108.7 million ounces, and China, Russia and India all actively adding to their already tens of millions of ounces in holdings.

Lee said gold bugs like Rand Paul and Ted Cruz, who fear the collapse of modern monetary policy, have prevented the U.S. government from selling off their reserves. Similar resistance, as well as tradition, has kept other countries also holding onto their reserves, he added.

Peter Schiff, head of Euro Pacific Capital, is another of those gold bugs. He said he believes Canada will likely regret the sell-off.

"I think it was a major mistake for the central bank to do that," Schiff said. "We're on the verge of a major, major meltdown of the dollar."

Like many gold aficionados, Schiff thinks the world could soon return to a gold standard and Canada will likely be forced to buy back the metal at higher prices.

"The irony is Canada is going to have to buy its gold back," said Schiff.

But Don Drummond, a former high-ranking bureaucrat at Finance Canada, said it hasn't made sense for Canada to hold gold for a long time.

He said he helped start the policy for Canada to gradually sell off its gold reserves after it was decided there were better ways to store wealth.

"It was just a realization that that's a lot of money tied up in something that was giving a terrible rate of return. And we didn't need it," said Drummond.

Drummond said that governments with foreign reserves in the trillions might find it difficult to diversify their holdings so they resort to gold at times, but Canada can easily diversify its US$81.5 billion in reserves with various foreign currencies.

A Finance Department said the sale was part of long-standing policy of diversifying its portfolio by selling physical commodities like gold in order to invest instead in assets that are more easily traded.



Advertisements

Latest Economic News

  • Montreal’s Luxury Retreats said to be Airbnb’s biggest acquisition to date

    Economic CTV News
    Online hospitality marketplace Airbnb has acquired Montreal-based posh vacation rental service Luxury Retreats in an effort to broaden its appeal to customers looking for more than a couch to crash on. The cash and stock deal reported to be worth between US$200 million and $300 million is said to be Airbnb’s biggest acquisition to date. Source
  • Kraft Heinz withdraws $143 billion bid to buy Unilever

    Economic CTV News
    NEW YORK -- Kraft Heinz has withdrawn its $143 billion offer to buy Unilever, backing away after the mayonnaise, tea and seasonings maker rejected the bid as too low. The companies announced the decision Sunday in a joint press release, saying that Kraft Heinz has "amicably" withdrawn the offer. Source
  • 1 killed, 3 injured in Saudi Aramco oil pipeline leak

    Economic CTV News
    DUBAI, United Arab Emirates -- Saudi oil giant Saudi Aramco says one person has been killed and three others injured as a result of an oil pipeline leak in the east of the kingdom. The company said in a statement Sunday that an emergency response team managed to contain the leak Saturday in Abqaiq. Source
  • IMF agrees to loan $5B to Mongolia

    Economic CTV News
    BEIJING - The International Monetary Fund and other partners have agreed on terms for a $5 billion loan to the Mongolian government to help get the north Asian country's economy back on track. The deal is subject to approval by the IMF's executive board. Source
  • Iraq says proven oil reserves rise to 153 billion barrels

    Economic CTV News
    BAGHDAD -- Iraq says new exploration has revealed an additional 10 billion barrels of oil, bringing its total proven reserves to 153 billion barrels. Oil Minister Jabar Ali al-Luaibi said in a statement Sunday that the increase comes from seven oil fields in central and southern Iraq, without naming them. Source
  • Toxic Jewelry and holiday scams: CBC Marketplace's consumer cheat sheet

    Economic CBC News
    Miss something this week? We got you. Here's this week's Marketplace cheat sheet. Get this in your inbox every Friday. Sign up for the Marketplace newsletter. Rotten reno Paul Gough says he's had to take time off work to act as a contractor and make his home livable again. Source
  • When will oil demand peak? Depends on our driving habits

    Economic CBC News
    In the past, forecasters had a relatively simple method of estimating whether demand for oil would increase or decrease and by how much. For the most part, they simply looked at the economy. If people were making more money, it was safe to assume they would spend more, travel more and head to the car dealership more often. Source
  • 'I was in shock': Why Canadians are still struggling with runaway cellphone charges

    Economic CBC News
    After CBC News ran a story about a cellphone customer who got hit with a $24,000 data roaming charge, more customers started writing in with their own nightmare bill stories. And most involved big data charges. Source
  • Ineffective laws fuelling Canada's online piracy problem, U.S. copyright group says

    Economic CBC News
    Ineffective laws that lag behind international standards have made Canada a hot spot for online piracy and copyright infringement, according to a group of rights holders that has again placed this country on its global watch list. Source
  • Enbridge says pipeline leak near Edmonton was caused by construction

    Economic CTV News
    EDMONTON -- Enbridge (TSX:ENB) says it believes a pipeline that leaked near Edmonton was struck by another company doing construction in the area. The pipeline company says in a news release that the incident happened Friday on its Line 2A pipeline at an industrial site in Strathcona County. Source