Canada’s golden age is over – at least in a manner of speaking.

The latest report on the country’s official international reserves, published Thursday, shows zero gold on the ledger.

The government has been winding down its holdings of the precious metal for years, but this is the first time it has declared itself to be effectively gold-free since the exchange fund account was established in July, 1935.

Other countries still maintain significant holdings.

The United States, for instance, holds 8,133.5 tonnes of gold, according to the most recent statistics compiled by the World Gold Council.

Germany owns 3,381 tonnes while the International Monetary Fund, Italy and France all have more than 2,000 tonnes of the shiny substance tucked away in their vaults.

Canada’s farewell to gold is sure to perturb fans of the metal, but it leaves most economists remarkably unperturbed.

“These days, gold has no legal purpose that is required under monetary policy,” said Ian Lee, a professor at the Sprott School of Business at Carleton University in Ottawa.

While many currencies were once backed by the precious metal, the link between paper bills and gold has disappeared in recent decades.

Under the Bretton Woods system that came into place at the end of the Second World War, currencies of most industrialized nations were pegged to the U.S. dollar. The United States, in turn, pledged to convert greenbacks into gold at a rate of $35 (U.S.) an ounce.

That system ended in 1971, when President Richard Nixon took the U.S. off the gold standard. Since then, gold has experienced wild swings in its value, rising as high as $1,900 an ounce in 2011. After falling to near $1,050 an ounce late last year, the metal has staged a recent resurgence, climbing above $1,260 on Thursday.

A spokesperson for the Department of Finance said the sale of the country’s final stash of gold was not motivated by any view on the metal’s investment appeal.

“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,” the spokesperson wrote.

Canada’s official international reserves are still bulging with other assets. At the end of February, the account held $48.6-billion in U.S. dollars and $22.5-billion in other currencies, as well as other holdings.

Economists see little reason for a currency to be backed by anything other than the good faith of government, but gold’s role in the monetary system continues to fascinate a vocal minority of investors. “Gold bugs”, as they’re known, include Ted Cruz, the Texas senator who is running for the Republican nomination for president. He has suggested that the U.S. return to the gold standard.

Prof. Lee speculates that the U.S. and Germany continue to hold large amounts of gold because policy makers fear the political whipping they would take if they were to sell their reserves of the metal.

“Both countries have very strong cadres of gold bugs,” he said. “I think the reason the U.S. Federal Reserve hasn’t sold off more gold is that it knows it would get attacked in Congress” if it did so.

Canada is home to many of the world’s premier gold miners, including Barrick Gold, Goldcorp, Kinross and Agnico Eagle, but its official reserves of the metal have dwindled in recent years. A decade ago, they fell below $70-million. At the end of January, they stood at a mere $24-million. Canada has sold nearly all of that but continues to hold less than $500,000 in gold coins that it is gradually unloading.

It’s a trend that Prof. Lee thinks is eminently reasonable. “The gold story these days is about psychology and history,” he said. “It’s not about central bank policy or economics any more.”

The Globe and Mail
Published Thursday, Mar. 03, 2016 6:20PM EST
Last updated Friday, Mar. 04, 2016 7:18AM EST