Canada, bucking an international trend that has seen central banks become net buyers of gold since 2010, has sold off all its official gold holdings. Canada’s official international reserves last released by the Bank of Canada (BofC) on February 23, 2016 showed gold reserves at zero (0). This is unprecedented. Canada now stands as the only G7 nation that does not hold at least 100 tonnes of gold in its official reserves. According to statistics from the World Gold Council (WGC), Canada’s current holdings would now rank it dead last out of 100 central banks, behind Albania at number 99. A footnote says that the BofC still holds 77 ounces of gold, primarily in gold coins.

Official International Reserves
The weekly Reserves data will be posted on the Bank of Canada’s website on the first business day following the 8th, 15th and 23rd day of each month. The monthly Reserves data will be posted on the Department of Finance website on the third business day following month-end.

Between 1999 and 2002 the United Kingdom, under the auspices of the Bank of England (BOE), sold roughly 395 tonnes of gold, representing over half of the UK’s gold positon. The UK pre-announced the sales, and held 17 auctions during the period. The era became known as “Brown’s Bottom,” named after Gordon Brown, the Chancellor of the Exchequer at the time. The immediate reaction was a 10% decline in the price of gold. Gold traded between US$253/ounce and US$350/ounce during the period, with the UK averaging roughly US$275 for its gold, and raising about US$3.5 billion (about £2.3 billion). Based on today’s prices of roughly US$1,270/ounce, the UK gold, if sold today, would be worth about US$16.1 billion (£11.3 billion).

While gold prices are up 335% since 1999, the US dollar and the euro, the two prime currencies that the BOE would have substituted for its gold holdings, have declined in value.

Will Canada’s sale of its gold become known as “Poloz’s Bottom,” named after BofC Governor Stephen Poloz? It’s possible, especially if gold was to rise sharply in the coming years, as it did following “Brown’s Bottom.” The UK’s reasoning for selling its gold at the time was that it wanted to diversify its assets away from gold, which was deemed to be too volatile. Brown’s action attracted a lot of criticism, and in order to deal with this sale a consortium of central banks, led by the European Central Bank (ECB) and the BOE, signed the Washington Agreement in September 1999, limiting gold sales to 400 tonnes per year for the next five years. That agreement was renewed in 2004, and again in 2009.

Flash forward 17 years and the BofC’s reasoning for selling its gold was 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.”