Gold is surging as Canada, a leading producer, has none. Is it time to buy?

Gold bars are stacked in a vault at the U.S. West Point, in West Point, N.Y. (AP Photo/File)

Gold prices have hit a record high, and central banks around the world are rushing to stockpile the metal. But Canada, which mines billions of dollars’ worth of gold each year, holds none in its reserves.

Zero. It’s the only G7 country with an empty vault.

There’s no need for it, according to the Department of Finance.

The department says official reserves are meant to aid and protect the external value of the Canadian dollar, and Canada has been able to achieve that goal without the metal.

Gold is trading over US$4,200 per ounce this week. The Department of Finance explained to BNN Bloomberg that if the government wanted to slow a decline in the dollar’s value, it would buy Canadian dollars in foreign exchange markets using foreign reserves, mainly U.S. dollars. But it hasn’t intervened in currency markets since 1998.

“We believe that holding high-quality, interest-bearing, foreign-currency assets is better suited than gold to achieve these objectives,” a Department of Finance spokesperson told BNN Bloomberg.

Historical records show Canada sold the last of its gold in 2016, ending a decades-long phase-out that began in the 1960s, when its reserves once stood at 1,023 tonnes.

That would have been worth about US$180 billion today, according to Bart Malek, head of commodity strategy at TD Securities.

“It might have been a mistake,” Malek said.

He said Canada’s decision to sell gold made sense decades ago when the dollar was stable and gold was cheap. But now it’s time to diversify its portfolio.

Canada needs to diversify its reserves

Canada’s official reserves are worth US$127 billion, all in paper currencies. More than half is in U.S. dollars.

That’s a problem, according to Malek.

He says Canada needs to reduce its dependence on the U.S. dollar and put some gold in its portfolio, which he calls a natural hedge.

“It’s an asset. It’s no one’s liability, and there’s no counterparty risk, and it has intrinsic value,” said Malek, adding that gold shields a country’s reserves from inflation, currency depreciation, and bond market risk.

Malek said central bankers and investors are reassessing the U.S. dollar’s role as the world’s dominant currency and its ability to anchor responsible monetary policy in the coming years. He calls this a “structural shift” in global finance.

The World Gold Council says that’s the main reason central banks are buying so much gold.

A new survey by the organization shows central banks have bought more than 1,000 tonnes annually for three straight years, double the pace of the past decade.

The report says gold’s performance during times of crisis, its value as a store of wealth, and its role in portfolio diversification remain the top reasons for holding it.

Seventy-three percent of respondents expect the U.S. dollar’s share of global reserves to fall over the next five years, while 43 per cent plan to increase their own gold holdings, up from 29 per cent in 2024.

None plan to reduce holdings.

While countries such as China, India, and Poland are accumulating gold, Canada is doing the opposite.

With all of its reserves in paper currencies, Malek says the country is missing a crucial layer of protection.

The irony as a leading gold producer

That irony isn’t lost on industry insiders. Canada’s gold production has jumped 31 per cent over the past decade, driven by high prices and a wave of new mine openings, according to the Mining Association of Canada.

The country now ranks fourth in global output, yet holds none of the metal it produces.

“It is unfortunate that Canada has not made a policy of actually holding on to some gold, because it would be worth so much today,” said Pierre Gratton, president and CEO of the Mining Association of Canada.

“Where we’d be if we’d held on to it now, we’d be in such a better position fiscally, if we held on to our gold, but we didn’t.”

Gratton added that gold is always a hedge in uncertain times.

“And we’re living in uncertain times... but for some reason, Canada hasn’t gone this route yet,” said Gratton.