Higher prices draw fresh attention from critics, curious about the absence of the precious metal in Canada’s financial reserves.
With gold prices rocketing to record highs in recent weeks, Canada’s lack of significant gold reserves is drawing fresh attention and a new round of criticism.
In September, America’s northern neighbor (or eastern neighbor if you are reading this in Alaska) reported about 77 ounces of actual gold in its multibillion-dollar financial reserves, most of which is foreign currencies, including the U.S. dollar.
This is especially curious, given that the Land of Maple Syrup, where output from substantial gold mining ranks the country fourth among the world’s largest gold producers, and ahead of the United States, which ranks fifth in the same calculation.
U.S. gold reserves, weighing some 8,133 metric tons, however, rank as the world’s largest among some 196 nations. Germany, France, Italy, and China round out the top five countries with the most gold in their respective financial reserves.
Yet Canada, a global leader in gold mining production, with impressive growth in recent years, has virtually no gold.
Gold production leader
In 2023, Canadian mines produced 198 metric tons of gold, marking a 2% increase from the previous year and a substantial 31% rise compared to 2014.
The value of this output reached approximately $15.1 billion (C$21 billion), making gold the most valuable commodity produced in the country. Although gold is mined across 10 provinces and territories, Ontario and Quebec stand out, collectively contributing 70% of Canada’s total gold output for 2023. Notably, the Yukon, while responsible for just 3% of national production, experienced a remarkable 49% surge in output in 2023.
Global gold mine production in 2023, by comparison, totaled an estimated 3,000 metric tons, roughly equivalent to comparable output a year earlier.
No-gold history
Canada’s lack of significant gold reserves resulted from a deliberate policy decision by the country’s government, based on several factors, decades ago.
Federal officials reasoned that holding physical gold would require secure vaults and insurance, thereby incurring ongoing expenses, and would pay no interest or dividends.
The Bank of Canada decided it could achieve better returns by holding interest-bearing assets such as foreign government bonds (e.g., U.S. Treasuries and German securities) and deposits.
By shifting to more liquid assets, Canada has prioritized holding foreign exchange reserves (primarily U.S. dollars, euros, yen, etc.), which are highly liquid and easily used for direct intervention in currency markets to stabilize the Canadian dollar.
The government opted instead to hold foreign currencies and bonds that are easier to use for market intervention and generate income, relying on the strength of the Canadian economy itself to support the value of its currency.
Reasonable change
The Bank of Canada once held an estimated 1,023 metric tons of gold, according to historical news reports, but it sold its last coins in 2016.
At today’s prices, 1,023 metric tons of gold would be worth more than $132.4 billion (C$185.3 billion), which would exceed the $126.5 billion (C$177 billion or so in foreign currency reserves that Canada held in October.
But many analysts agree that selling gold, which took place as a formal Bank of Canada policy in 1980 and continued over the years, was a practical strategy.
“It definitely made financial sense back then, and probably over the long arc of history, it was the right thing to do,” Jeffrey Christian, managing director of the CPM Group, a precious metals and commodities research company, told a reporter recently.
Christian also reportedly said Canada wasn’t the only nation to sell down its gold reserves at the time, noting that it was the “common wisdom” among central banks in the 1970s, after the United States eliminated the gold standard in 1971, which allowed anyone to exchange an ounce of gold for $35.
Leaving gold behind
Canada began the process of gradually selling off its gold in the 1980s, when gold rallied to $875 an ounce on Jan. 21, 1980, before beginning a 19-year decline to $250/oz.
The country significantly accelerated its gold sales during the 1990s and early 2000s under the leadership of Finance Minister Paul Martin and Canadian Governor Gordon Thiessen, aiming to optimize reserve asset management.
By 2016, the country had sold its last significant holdings of the precious metal, leaving about 77 ounces valued at about $130,000 (C$182,000) at the time.
Today, Canada’s official gold reserves are reported as zero metric tons (or a negligible amount), worth a trivial sum relative to total reserves.
Canada’s financial reserves, meanwhile, totaled some $126.56 billion (C$17.57 billion) in September, down about US$1.32 billion (C$1.85 billion) from the previous month, according to Statistics Canada.
The value of the reserves fluctuates, having climbed to a high of nearly $128.1 billion (C$179.2 billion) in September 2024 from a record low of $1.68 billion (C$2.35 billion) in May 1962.
The reserves, managed by the Department of Finance Canada and the Bank of Canada, primarily consist of foreign currency securities, deposits, Special Drawing Rights, and a reserve position in the International Monetary Fund. The main purpose of the reserves is to support the external value of the Canadian dollar.
Among all countries reporting financial reserves in 2024, China purportedly led the pack with roughly $3.5 trillion (C$4.9 trillion) in total reserves, including gold; followed by Japan with $1.2 (C$1.7 trillion) in comparable reserves; and the United States in third place with nearly $910 billion (C$1.3 trillion) in total financial reserves, including gold, according to the World Factbook.
With the recent jump in gold prices, however, the value of U.S. gold reserves alone topped $1 trillion (C$1.4 trillion) for the first time in September.
Ongoing policy debate
Today, Canada’s foreign exchange reserves are primarily foreign assets held or controlled by the country’s central bank. The reserves are made of gold or a specific currency.
They can also include special drawing rights and marketable securities denominated in foreign currencies, such as treasury bills, government bonds, corporate bonds, equities, and foreign currency loans.
Non-government analyses of Canada’s lack of gold reserves highlight an ongoing debate, with critics arguing it leaves the country vulnerable to economic uncertainty and currency depreciation, especially as other nations increase their gold holdings.
Seeing the void as, at best, a lost opportunity and, at worst, a strategic mistake, these critics argue that Canada’s historical decision to liquidate its gold was shortsighted and that holding a “tier one asset” like gold is a strategic imperative.
Analysts worry that without gold reserves, Canada is exposed to a potential “monetary reset” or crisis, lacking a tangible backstop for its currency. They say gold is a safe-haven asset that can hedge against inflation, currency depreciation, and market volatility, a role it could play for Canada.
The historic sell-off also happened when gold prices were low, and critics argue that liquidating its holdings in 2016 was a major mistake, as gold prices have since increased dramatically.
With countries like China and India increasing their gold reserves, some analysts see Canada’s lack of a physical gold reserve as a strategic disadvantage in a changing global financial order.
Additionally, some critics, like Maxime Bernier – a Canadian politician who founded and leads the People’s Party of Canada – have reportedly called the Canadian government’s approach “insane” and a “critical oversight,” urging an immediate return to a more traditional reserve strategy.
The Canadian government, however, is sticking to its position that a portfolio of liquid, interest-bearing foreign currencies is a better tool for managing reserves.