There is precedence in a central bank selling off its gold, and it didn’t work out very well. In 1999, when the price of gold was low at $282.40 an ounce, the United Kingdom sold half of its gold reserves, worth approximately $6.5 billion. The sale raised $3.5 billion. By 2007, the price of gold had risen to $675.00 an ounce, and the UK had lost more than £2 billion. This financial disaster, known as Brown’s Bottom, did not work out well. And Canada appears to be following in its footsteps.
With many uncertainties globally, Canada’s gold sale could have serious consequences.
Fed signaling interest rate hikes =
Fed shrinking balance sheet =
National debt rising rapidly =
Household debt rising =
Weak growth =
Rising inflation =
Geopolitical risks =But hey, things are going to be fine…
In this age of fiat currency, many people forget that gold is actually money, and has never stopped from functioning as a reliable store of value. Gold is a relatively liquid currency and one of the most highly traded.
According to Canada’s senior Finance Department economist Morneau, the reason for the gold sale was the cost involved in storing the gold and the fact that gold offers a poor return. That seems like strange logic since gold has outperformed the S&P 500 since 2000. The price of gold went from $35.00 an ounce in 1967 to over $1,300 today.
As former Federal Reserve chairman Alan Greenspan has said:
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