Canada has sold all of its gold. We now hold literally 0% of our foreign reserves in gold. While we didn’t have far to go (from 0.1% on February 3rd) this is symbolic of an ideology. That ideology, of course, is Keynesianism – an ideology far from sound money which the United States abandoned in 1971 when it took the U.S. Dollar off the gold standard.
Since then, the U.S. Dollar has been the new gold standard, as many countries, Canada included, have either pegged their currency to the dollar or simply held vast sums of US dollars to act as a hedge, against inflation, against instability in a bid to support their respective currency. This has benefited the US for decades as it is able to export its inflation by sending its dollars overseas to buy products for the American consumer. This cycle is slowly coming to an end as large middle classes begin to emerge from developing nations around the world and the US economy continues its decline.
Take, for example, the latest news that drove the Canadian dollar up 0.75 of a cent to US74.58 cents yesterday. The move came on the heels of better-than-expected 1.2% GDP numbers for the year of 2015.
This is how low expectations have become. Not contracting in the west has become a beacon of success.
Canada sells gold as debt rises
The underlying cause for concern is the simple fact that as North America’s economy contracts and ages, politicians and central bankers will print money, borrowing tens of billions of dollars to support social programs and buy votes. What’s more, Canadians are drowning in debt as the ratio of household credit-market debt to disposable income hits record highs quarter after quarter. All of this is undermining confidence in the U.S. dollar and it cannot continue unchecked. So, in the face of record budget deficits, Canada has decided to sell its remaining gold.
What should Canada be buying?
Well, for starters, it shouldn’t have sold all of its gold. This has proven to be completely irresponsible over long periods as gold has held up against failed fiat currencies throughout history. Gold has been money for over 2,000 years and every fiat currency has been met with disaster or hyperinflation at some point. Check out the below list of countries who feel it necessary to hold gold:
image source: http://www.statista.com/statistics/267998/countries-with-the-largest-gold-reserves/
Canada holds four main currencies in its foreign reserves:
The currencies are the U.S. dollar, Euro, Pound sterling and the Yen.
The gold markets are picking up as deal get done and capital flows back into the junior gold space. In our latest EBook we reveal 50 leaders who took small-cap stocks to stunning multimillion and, in some cases, billion dollar buyouts. The companies these leaders run today are described in this one of a kind rolodex of some of the top entrepreneurs and business minds in the small-cap mining, technology and energy sectors.
On February 12th, I wrote an article titled Canada’s Gold Reserves drop below 0.1%. The country’s decision to sell its gold holdings was reviewed:
“The Department of Finance announced on February 3rd that the country’s gold holdings had fallen to just 0.62 tonnes. This equates to less than 0.1% of the country’s total reserves.
Canada’s entire hoard of gold is worth just US$24 million. There are dozens of properties in Vancouver now worth more than our entire country’s stash of gold. So, why is Canada selling all its gold?
A spokesperson from the Minister of Finance stated that:
“The decision to sell the gold was not tied to a specific gold price, and sales are being conducted over a long period and in a controlled manner.”
source: http://globalnews.ca/news/2508940/canada-sells-nearly-half-of-all-its-go…
Click here to read Canada’s Gold Reserves drop below 0.1%.
While the sales might not be related to any specific price, the price of gold is rising. Gold was up over $24 an ounce to a high above $1,264 Thursday afternoon. While gold is still off huge from its high of $1,900 in September of 2011, Canada may soon live to regret parting ways with every ounce of gold in its foreign reserves. As mentioned in previous articles on this topic, Canada’s only saving grace is that the country is mineral rich and has tons of gold in the ground. Still, a currency crisis can erupt overnight. Not having any exposure to gold is not the behavior of a prudent investor or country.
This article represents solely the opinions of Alexander Smith. Alexander Smith is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information in this article is of an impersonal nature and should not be construed as individualized advice or investment recommendations.
