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Sprott School of Business professor disparages gold
In 2006, when Canada sold the last of its official gold reserves, the gold price was fluctuating between US$1,140 and US$1,380. Today gold is at US$1,883. Since 2006 it has been as high as US$2,000 and has never been lower than it was in 2006. In recent years central banks have turned from net sellers to net buyers of gold. Gold has performed so strongly despite the decades-long, largely surreptitious, and well documented official intervention against it going back decades, an intervention studiously overlooked by academia and mainstream financial news organizations.
The primary benefactor of Carleton University's Sprott School of Business, Canadian mining entrepreneur and philanthropist Eric Sprott, is too much of a gentleman to ask the university for his money back, but the school might do well to invite him to debate the uninformed professor quoted about gold's supposed uselessness in the news report below.
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Experts Maintain Canada's Decision to Sell Gold Reserves Was the Right One
By Matthew Horwood
Western Standard, Calgary, Alberta, Canada
Wednesday, April 27, 2022
Eight years after Canada sold off its last remaining gold reserves, economists say the precious metal has little use in the modern global economy.
"The only justification for keeping gold reserves in the central banks is if they thought one day they were gonna go back to the gold standard," said Ian Lee, an associate professor at Carleton University's Sprott School of Business.
During the first few months of the pandemic, purchases of gold and silver soared in the U.S. and Canada, as people looked for ways to keep their finances secure amid economic uncertainty. That trend has barely slowed, with Swiss shipments of gold to the United States recently surging to their highest levels since May of 2020.
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But the Canadian government has not taken part in the scramble for precious metals. In fact, back in 2016, the department of finance sold off its last remaining gold reserves, obtaining $35 million in exchange for selling 21,851 ounces of gold coins.
Canada is now the only G7 nation that does not hold at least 100 tonnes of gold in its official reserves. Other countries that hold zero gold reserves include Nicaragua, Costa Rica, Azerbaijan, Armenia, and Cameroon.
"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," a finance department spokesperson said at the time.
Lee said he doesn’t see "any real logic" in Canada holding gold, since no country is on the gold standard anymore. Lee said many countries went off the gold standard because it ended up making the Great Depression worse, as the rigidity of gold "reduced the capacity and flexibility of the central bank to intervene."
"You want to have all your tools at your disposal for a disaster. There are much more sophisticated tools of interest rates, quantitative easing, buying and selling currencies in the exchange markets. The central banks have a much bigger toolkit than they did 50 or 100 years ago," he said.
Lee said for the Bank of Canada, holding multiple foreign currencies makes more sense than "holding a bunch of gold in a basement on Wellington Street in Ottawa."
"I've read papers by the central banks and they just cannot imagine a scenario where gold is going to come back as the standard. Gold doesn't have any intrinsic value, except that we all agree it's valuable," Lee said.
Kevin Page, Canada's first Parliamentary budget officer, said the unloading of Canada's gold reserves "did not seem like a big issue to me at the time." Page said he does not believe Canada needs to hold gold as a part of its international reserves, as "the days of currencies backed by gold are passed."
"If the argument is the value of gold has risen in the face of global uncertainty and the value of international reserves would be larger if we chose not to unwind our gold stocks, that is true, but why gold?" Page asked. "It is not as liquid as the American dollar. In a crisis, if the Bank of Canada needs to intervene in foreign exchange markets, liquidity and deep markets are most important."
Eric Miller, president of the Rideau Potomac Strategy Group, agreed that holding gold can be disadvantageous due to the difficulties in trading it in international markets. But he said he believes that a "well-balanced portfolio" would include the precious metal.
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