[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]A[/dropcap]s of March 3, 2016, Canada went from having a billion dollars of gold reserves to zero.1 The 77 ounces of gold left in the Treasury is not counted, as asset valuations are rounded to the nearest million for official international reserves. Canada therefore became the only industrialized country to have sold all its gold reserves.
…gold is still the only universal acceptable currency for international exchange.
Were the authorities “idiots” as Rob McEwen, Chairman of McEwen Mining and founder of Goldcorp, the second biggest mining company in Canada, claimed? Or were they astute businessmen? What were other major countries doing? Below is an interactive graph that shows the Gold reserves each country holds and the Foreign exchange (Forex) it holds as a percentage of its Gold reserves. For more, hover over the graph to get additional data.
Source: John Whitefoot, “Top ten countries with the highest gold reserves,” profitconfidential.com, February 23, 2016.
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]hese figures are not static as countries are continually increasing or decreasing their reserves. Italy and France seem to have enough gold since they have stopped buying and selling since 2000 and 2010 respectively. The USA has the most gold reserves, but two-thirds of Germany’s gold is held in the USA, in trust. Fort Knox has 4,578 metric tonnes while the Federal bank of New York has double that.2 America’s large deposits of gold enable it to print money in times of adversity. China has become the largest producer of gold, since 2007; in 2016, it bought 520K ounces and Russia bought 520K ounces as a hedge against sanctions and a possible devaluation of their currencies.3 Japan is facing a recession with a Quantitative Easing environment, and has increased its gold holdings to 1248 ounces in January 2016.4
India has no significant internal gold mining activity yet. But it used to be, before Russia’s 2016 purchase, the largest importer and buyer of gold. Indian households own 22K tonnes of gold, of which 600 tonnes are used for jewelry each year.5 The Indian Government controls the flow of household gold by manipulating the Permanent Account Number (PAN) rules. The gold tax and duty hikes have “shuttered” the gold market in 2016. Since January 2016, consumers should provide PAN for transactions greater than Rs. 2 lakhs (about $ 3,000). The previous equivalent figure was Rs. 5,000 (around $75.)6 These strict rules will dampen the household market, say the rural consumers, who hold most of the metal.
Two-third of the world’s gold is held by Asia. Turkey, for example, is the world’s fourth largest household consumer averaging 181 tonnes per year for a decade. Turkey consumes 6% of global consumer demand. Experts estimate that Turkey has 3,500 tonnes” “under the pillow.”7
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]C[/dropcap]anada’s sale of all its gold reserve assets in March 2016 should be seen in this context. Canadian authorities seemed to have taken Warren Buffett’s view8 that gold is rare but “useless and worthless.” Buffett, the greatest investor of our generation, says, “(Gold) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” Gold, in addition, does not create wealth, notes Buffett.
Former Senior Finance Department bureaucrat Don Drummond9 echoes Buffett’s views. Drummond explains that Canada’s sale of gold reserves were done in order to invest in assets that were easily traded. Gold in the Treasury did not yield a good rate of return and the cost of storing it was uneconomical. Professor of Canadian Sprott School of Business Ian Lee added some legalese. There was “no legal purpose that is required under monetary policy.” The link between gold and paper bills had disappeared in recent decades. And, since World War II, currencies were pegged to the US dollar… The gold story these days is about psychology and history …not about central bank policy or economics anymore.” The Treasury therefore bought $48.6 billion worth of US dollars, $22.5 billion worth of other currencies, and other holdings that would yield some gains.10
Canada’s sale was like the British sale between 1999 and 2002 when Britain sold half of its gold reserves worth US $6.5 billion. But it was unlike the British one as Britain sold at a huge discount. Chancellor Gordon Brown made two errors: instead of selling the gold at the fixed price, gold was sold at an auction; secondly the date of sale was announced in advance which sent the price of the pound down. Gold was sold at its lowest price, $282.4 per ounce on May 7, 1999. This error cost Britain the equivalent of $19 billion.11 Britain was left with 395 tonnes of gold; in 2015, it was 330.6 tonnes. Canada, on the other hand, sold its gold at a relatively high price, $1234.90 per ounce and received $35 million.12
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]P[/dropcap]rofessor Fekete’s13 view is still valid, that gold is still the only universal acceptable currency for international exchange. It is accepted and continues to be accepted in unlimited qualities. It is the only conceivable standard we have. The World Global Council made up of 19 miners and at least 5 banks tries to regulate the gold market.
“Canada spends all its gold,”pravdareport.com, 4.3.2016.
Paula Wilson, “How much gold is in Fort Knox?” celebritynetworth.com, February 10, 2014.
Politonline, “Russia becomes world’s largest buyer of gold,” pravdareport.com, 1.3.2016.
Whitefoot, op. cit.
PR Somasundaram, “Developing Indian hallmarking,” gold.org, July 30, 2015.
Adrian Ash, “India’s gold industry split over new PAN rule,” 24hgold.com, January 13, 2016.
Alistair Hewitt, “Turkey: gold in action,” gold.org, January 22, 2015.
Mathew DiLallo, “Why Warren Buffett hates gold,” the fool.com, September 13, 2014.
“Canada’s gold stash down to last bit as it almost empties reserves,” thestar.com, March 3, 2016.
Ian Mcgugan, “A farewell to gold: Canada winds down its holdings,” theglobeandmail.ca, March 3, 2016.
“Sale of gold reserves, 1999-2002.” Wikipedia.org.
Bloomberg news, “From a billion dollars to zero: Canada stands alone in G7 as it empties its coffers of gold,” business.financialpost.com, March 4, 2016.
Antal E. Fekete, “The Principle of the Gold Standard,” 24hgold.com, September 1, 2015.
1. The conversion rate used in this article is 1 USD = 67.21 Rupees.
2. Text in Blue points to additional data on the topic.