Unlike other countries, Ottawa has been selling off its reserve of gold bullion and coins.
The government of Canada has been selling all its gold reserves in favour of hoarding other countries’ currencies instead.
How Foolish Can You Get?
Anyone who understands even the basics of “money” versus “currency” will be able to tell you that gold is real money, whereas any currency (also called a “fiat currency”) has no more value other that the material it is printed on.
All throughout history it has been proven that a currency can be cancelled at any time to the whim of any government. A currency does not hold any intrinsic value, both in in time. Just take a thousand dollars, record what you can buy with it today, and store in a drawer for ten years. Then, after ten years, take the thousand dollars try to buy something to the same “value” as ten years prior.
You cannot, because a currency always looses value over time due to inflation and other unrelated circumstances.
Not so with gold. Whatever you can buy with gold today, you will be able to buy the same value in ten years from now.
Why is Gold So Important in Any Country’s Economy
According to Steven Feldman, who is a Retired partner of Goldman Sachs (GS), he strongly disagree with GS’s Investment Strategy Group’s (ISG) views about gold – particularly ISG’s supposition that gold is not a strategic asset.
Physical gold is important for two reasons. First, physical gold has no counterparty risk.
In 2008, Lehman had just failed, and the other major financial institutions would now require government support in order to avoid the same fate.
Second, physical gold is the only money that cannot be printed. Any country’s massive quantitative easing always debases the fiat currency in a way that is unprecedented.
Physical gold holdings protect and grow a country and personal wealth by purchasing it as easily and safely as buying a stock or bond.
Gold is Money. Stocks are Something Else.
Gold is a store of value. It is the ultimate form of money. Unlike stocks, gold is not supposed to be an income producing asset or a dividend-generating security. Therefore, comparing gold to stocks is akin to comparing apples to oranges. As ISG points out, gold is more appropriately compared to the US dollar. Like the Canadian and US dollar, gold is a medium of exchange that is accepted around the world. Like gold, the Canadian dollar pays no dividend.
The biggest difference between gold and the Canadian or US dollar is that unlike Canadian or US dollars or any other fiat currency on the planet, the supply of gold is limited. On April 6th, 2020, the Financial Times released a projection that puts this difference between gold and the US dollar in stark relief: the projected US Fed balance sheet will increase $5T to $9T by the end of the year.
That balance sheet figure, in and of itself, is nearly as large as the value of all the gold that exists in the world. Moreover, the US Fed will continue to set or drive interest rates to zero. While the relationship among balance sheets, interest rates and money supply are complex, the net effect is that the Fed will add more supply of US fiat dollars into the market, as compared to a virtually fixed amount of physical gold ounces.
Consequently, gold will likely maintain its multi-millennia status as the only form of money that maintains its absolute purchasing power over time. Gold will likely outperform all major fiat currencies as it has for the last 120 years.
According to the Canadian Department of Finance’s official international reserves data released Thursday, Canada’s gold reserves were down effectively to $0 as of the end of February. That’s the value that Ottawa assigns its gold holdings from an accounting perspective.
The price of gold is currently selling at $1,705.15 US an ounce.
Other Countries Still Hold Gold Reserves
That doesn’t mean all governments are selling off their gold hoards, however. Countries such as Russia, India and China are currently bolstering their reserves.
In February 2016, the U.S. held about 8,133 tonnes of gold, which made up 72 per cent of its reserves. Germany had 3,381 tonnes for 66 per cent of its reserves last month, while Italy and France each held more than 2,400 tonnes — over 60 per cent of their respective reserves.