In what the original article described as an unprecedented action by Canada, the Canadian government had recently chosen to sell its remaining stock of gold reserves. Although the reserves left at the start of February that year totaled only 1.7 tonnes, Atlanta Gold & Coin was not aware at publication of another modern developed country that had fully disposed of its gold holdings. The decision came while the Canadian dollar had been struggling in foreign-exchange trading, particularly against the U.S. dollar, as the original article had noted in a recent post. As many readers understood when this article was published, the United States was the last country to take its currency off the gold standard in 1971. Even so, many nations continued to hold part of their reserves in gold. Gold had served as money for thousands of years, and those holdings could give citizens some reassurance that their currency retained at least an implicit connection to gold. The original article examined three possible concerns raised by Canada’s decision.
Canadian Gold Maple Leaf Coins
For people working in the coin or bullion business at the time this article was published, the immediate question was likely “what will become of the Canadian gold maple leaf coin?” The answer was still uncertain at publication. Atlanta Gold & Coin had sent the Royal Canadian Mint the following inquiry and stated that readers would be informed of a response if one was received: “[Name omitted], with Atlanta Gold & Coin Buyers. I recently read that the Canadian government completely sold out of its stock of gold reserves and would like to know how this is expected to impact the production of Canadian gold maple leaf coins? I know that Canada is one of the world’s largest producers of gold. Do you anticipate on meeting future gold coin demand through newly minted gold, scrap or just simply reduce or eliminate the production of gold maple leaf coins?” If the Mint had to use only Canadian-mined gold for its gold coins, newly mined metal would be the only possible supply, since scrap gold could originate in other countries. The original article further suggested that a reduction or complete end to Gold Maple Leaf production could, over time, make the American gold buffalo the most popular 24k gold coin.
Strength of Currency
As the original article explained above and in its earlier post, the Canadian dollar had performed relatively poorly in foreign-exchange markets and had lost considerable ground against the U.S. dollar over the preceding years. At the time of publication, it had rallied somewhat during the prior month, reaching an exchange rate against the U.S. dollar of .75 to 1, but the article said concerns remained. The Canadian dollar was described as a commodity-based currency, meaning its strength was closely connected to the performance, or weakness, of commodity markets. Commodity markets generally had struggled in the months before publication, with precious metals identified as the exception. There were also concerns that the global economy could enter recession. Some countries and central banks were already in recession or close to it and, when this article was originally published, had introduced negative interest rates to encourage spending. The article argued that this approach devalued a currency and could make recovery from a severe economic decline harder. Gold reserves, it said, could ease fears of a currency collapse. As of February of that year, Canada no longer had that implied backstop. The government could potentially have imposed harsh requirements on mining firms to keep future Canadian-mined gold within Canada, but the article cautioned that, by the time gold was required, such action would probably be too little and too late.
Gold Backed Currency
Canada had left the gold standard 83 years before this article was published, yet hard-money advocates and free-market supporters hoped Canada and other major developed countries would someday return to a gold-backed currency. The United States, the last country to abandon the standard, did so in 1971. Until 1971, central banks could redeem dollars for gold at $35 an ounce. The original writer’s view was that a major country, Canada included, was very unlikely to restore a gold standard voluntarily because doing so demanded restraint and fiscal responsibility. Instead, the article argued, countries would reluctantly agree only when faced with what they considered near certainty of currency collapse and destruction. In that scenario, countries such as China and Russia, which the original article said had been accumulating gold reserves rapidly, would hold an advantageous position. Canada and other developed countries with little or no gold would face a substantial disadvantage. Those nations were presumably confident they would never need to return to a commodity-based standard. Still, the article reasoned that if central bankers’ efforts failed to pull their countries from recession, governments would continue devaluing their currencies to promote exports and growth. That process could ultimately become a full currency war and, in the article’s view, could require a return to the gold standard.
Summary
The original article concluded that Canada’s sale of its gold reserves warranted concern. From a coin and bullion standpoint, it raised uncertainty about whether, and in what way, the decision might affect Canadian Gold Maple Leaf production, described at publication as the most popular 24k gold coins in the market. It also noted that the Canadian dollar had been relatively weak in foreign-exchange markets and argued that disposing of the country’s gold holdings would not improve that position. Finally, it asked how Canada’s currency might perform if a global currency war occurred, an outcome the article considered possible, and countries were again compelled to adopt a gold standard after Canada had sold its reserves. Only time would answer those currency-related questions. At publication, Atlanta Gold & Coin stated that readers would receive an update if the Royal Canadian Mint responded regarding production of Canadian Gold Maple Leaf coins.
