Canada Dumps Gold Reserves

A report released regarding the status of Canadian gold reserves at the end of February confirms that the country has sold off essentially all of the gold it once held. Instead, the Canadian government has pursued a policy of buying up the currencies of other nations as a convenient and more liquid method of holding value.

Though February brought the Canadian reserves down to a record low of just 77 ounces, an amount that is virtually meaningless on a national level, the selloff did not occur all at once. Instead, Canada’s current lack of gold reserves is the end product of a long, gradual process that has sought to divest the country of all gold reserves in favor of currency assets over the past several years. “The government has a long-standing policy of diversifying its portfolio by selling physical commodities (such as gold) and instead investing in financial assets that are easily tradable and that have deep markets of buyers and sellers,” said David Barnabe, a spokesman for Canada’s finance department, regarding the continued selloff.

As Canada sells, however, other nations are readily buying up extra gold in order to keep their currencies stabilized. Notable among major buyers at the moment are Russia and China, both of which have seen the negative effects of market volatility in the past year. In January, Russia added 688,000 ounces of gold to its existing reserves, while China added 520,000. These large buy-ups of gold are likely intended to stabilize the currencies of these countries, as well as to provide an additional reserve in case of emergency spending needs.

Canada’s new gold-free model, however, may also have its merits, despite not having been widely tested in fully developed economies. At the moment, the collapse of commodity prices has made gold and other precious metal reserves more of a liability than an asset. This fact, coupled with the increased liquidity of Forex assets, is the driving force behind the decision to bring Canada completely away from the use of gold reserves to ensure economic stability. The large amounts of buying and selling of gold in order to detract from or add to gold reserves has also somewhat stimulated the price of gold, causing it to reach a year-to-date high of $1,272 on Sunday.