Canadian leaders don’t just hate gold. They must hate prosperity itself.
After looking poised to rack up fresh all-time-highs (in USD terms) earlier this year, the gold price has experienced somewhat of a dump lately. It’s possible the market believes the likes of Paul Krugman – who is taking victory laps because inflation has been supposedly been defeated without bringing on a recession (he calls it a win for “Team long transitory”, whatever that‘s supposed to mean).
Still no recession, but core PCE down to 2.2% on a three-month basis. Team Long Transitory for the win.— Paul Krugman (@paulkrugman) September 29, 2023
We can debate whether we’re in a recession now, as the likes of Marc Faber opine, (“I believe that the US economy is in properly measured ‘real terms’ already in recession” – GBD, October ’23) – or that the Fed has deftly maneuvered a soft landing with nary a recession in sight.
However you anybody watching the rate at which central banks around the world are hoovering up the yellow metal, would think they’re positioning for something and it isn’t a soft landing. Central bank bullion purchases set a fresh record over the first half of 2023 at over 200 tonnes.
So who is backing up the truck?
Not many surprises there, (except maybe the ECB) and the Q2 net numbers were dampened because Turkey – who has been in a slow motion firefight with high inflation for over twenty years had to sell off a boatload to support the Lira. The takeaway from that is they had gold reserves to support their financial system.
Fourth largest gold producer in the world.
Of the top gold producing nations in the world, Canada is number four.
Canada stands out contrary to all the other top gold producing nations, as it is the only top ten producers where the central bank’s FX reserves holds no gold. Zero, nada.
Even Ghana, the sixth top producing nation, whose national GDP is about the same size as Oakville, Ontario has 8 tonnes of gold squirrelled away.
After steadily selling down its gold reserves since the 60’s…
Justin Trudeau’s first finance minister, Bill Morneau, emptied out Canada’s remaining gold reserves in 2016, pretty well bottom-ticking the gold bear market that started in 2011.
The above chart from 2016 came from a piece on my old blog observing how central bank governors had a peculiar knack for selling off gold reserves at a secular bottom, like the Bank of England’s Gordon Brown back in 2000, or cyclical ones as in Canada’s Bill Morneau, in 2016.
Morneau’s predecessor, Mark Carney – who was appointed by Stephen Harper made an oblique “barbarous relic” comment in 2010 – channeling, as many central bankers and Nobel Laureates do, John Maynard Keynes’s famous quip from 1924.
Few, if any of them, realize that Keynes underwent three distinct phases over his investment career and he made the “gold is a barbarous relic” pronouncement during the middle phase, and later changed course.
At the time of Keynes’s death, he had two-thirds of his net worth invested in South African gold miners. Fewer still understand that (aside from being a pederast and a eugenicist), Keynes was also a Fabian Socialist and that his economic prescriptions, when implemented, would inexorably lead to communism.
Snatching Defeat From the Jaws of Victory
Canada is sitting on the third largest oil reserves in the world (after Saudi Arabia and Venezuela). Instead of maximizing the opportunity to become an energy superpower, one based in a politically stable, democratic jurisdiction; Ottawa has instead embarked on an ideological crusade against the oil and gas industry, framing it as the villainous boogyman in some grandiose, shared psychosis of climate alarmism.
It has left Albertans feeling so demonized by Ottawa’s insular political class, that the idea of #Wexit, which wasn’t even a thing prior to the election of Justin Trudeau, is practically baked-in now. Especially if the Liberals squeak out another election win (that’s doubtful, but if they do, Alberta will be out).
In late 2022, German chancellor Olaf Scholz made a rare foreign trip, coming to Canada practically begging us to sell his country natural gas, given the awkwardness around their primary supplier being Russia. Trudeau told him to suck it, and offered him sell him unicorn farts instead (hydrogen, ten years out).
Germany went on to sign a 15 year deal for natgas with Qatar.
Not long after that, Trudeau told the same thing to Japan. They ended up entering into a long term deal with the Abu Dhabi National Oil Company (ADNOC).
In other words, Canada is divesting out of hard assets, trying to kill its energy sector, while going long on wokery and even collectivism.
The Era of Woke Capitalism is Over
The era of Woke capitalism is over. The entire ESG “model” can only work within the heady exuberance of an Everything Bubble, and the Everything Bubble ended along with a 40 year bull market for bonds and the end of cheap capital.
Reality is now reasserting itself, and all that woke crap is finished. In some places this is unfolding faster, and some places more slowly. But it’s done.
The current Canadian government, however, seems to have missed the memo entirely, and is doubling down on it.
While other central banks around the world have been sensing a tectonic shift in the global financial system (namely, de-dollarization within a multi-polar monetary world) and loading up on gold, Canada is completely wrong-footed and in denial about it.
We expect this to worse before it gets better.
Even if the central banks of the world do pivot and reignite the printing presses (and they probably will), it will no longer be a heady, feel-good sequel to the Everything Bubble, and it will not bring about an era of Fully Automated Luxury Communism (a.k.a MMT). Instead, it will be a hyper-stagflationary currency war against the backdrop of a rapidly shifting global financial system – and those central banks holding the gold will be the ones setting the rules in the post-post-Bretton Woods Era.