Here are some of my thoughts on Why Canadians Need to Own GOLD and I’m talking physical, hold it in your hand gold. First off, this isn’t a doom and gloom kind of post. I’ve tried to articulate in as sane and sober way as possible my personal reasons for holding a portion of my family’s assets in the so-called useless yellow rock.
Out of Control Debt and Deficits
It’s no secret that Canadian Government debt and deficits are spiralling out of control with no end in sight (their words not mine). If we zoom out and take a look around the world, you’ll see the same thing is happening everywhere in both developed and developing economies. So while Canada isn’t alone I don’t think that engaging in this destructive financial behaviour because “everyone else is doin it” is a great way to run public policy.
Currency Crisis
Eventually debt and deficits lead to currency crises. If you think this is impossible then read some history from 1914 to 1945. You think we have inflation now, just wait until we hit a real financial reckoning.
I think there are at least 2 ways this can play out. First, Canada could fall into recession, perhaps a severe one. Canadians have record debt levels and we have a major housing bubble. Inflation is proving to be sticky which causes the Bank of Canada to hold interest rates higher for longer. Insolvencies and bankruptcies are on the rise. With the vast majority of mortgages set to renew in the 2024 to 2026 time frame we could see housing prices fall fast. This would cascade into all sorts of bad things kind of like we saw in the US in 2006 to 2012.
Most likely the government would try to orchestrate a rescue in concert with the BOC. And I think this would cause our currency to take a big hit relative to the US dollar. Since everything is priced in USD, a weaker Canadian dollar would cause price inflation in everything we consume in this country. That’s the general way things would go.
A second scenario could be a global sovereign debt crisis that results in some kind of currency reset. This seems to be what many global central banks are preparing for…or at the very least hedging against by buying up gold in record amounts since 2019.
Countries like China, Russia and the BRICs organization are stockpiling large quantities of gold as way to circumvent US dollar dominance. They argue the USD is not a neutral reserve asset since the US Government seized Russia’s foreign USD reserves in 2022. Whether or not you agree or disagree with the move, it served as a wakeup call to every country around the world that they need to diversify their foreign reserves. In addition to the threat of seizure, critics also point to high US Government debt levels and increased deficit spending that inflates the value of their USD reserve holdings away over time.
Make no mistake about it, a global sovereign debt crisis would cause major waves: like financial crises, recession/depression and potentially more wars. In that kind of world gold would likely emerge as an important reserve asset for Governments and Central Banks. That’s why governments in Europe and Asia are busily securing their gold now. Meanwhile Canada’s central bank sold all of its gold years ago and has not seen the need to hold any at all. Instead they put their full faith and trust in the US dollar which as I mentioned above, is fraught with risk.
GOLD is the Ultimate Diversifier
Now I’m not here to say that gold is the end all be all solution to everything. Most of the time it does nothing and its performance measured against the stock market or housing etc isn’t all that great. Even claims that it protects against inflation and deflation have been called into question recently. After all in 2021 Gold fell in price as inflation was at decades highs.
So why do I think it’s important to own gold at all? A few reasons.
First, Gold has a very long proven track record of being a store of value over time that preserves purchasing power. I’m talking about a 5,000 year track record. Yes, its price fluctuates in relation to various currencies etc and there have been times when it has dramatically underperformed (ie. 1982 to 2000 and 2012 to 2020). But it has performed exceptionally well during times of crisis like the Global Financial Crisis, during the Great Stagflation of the 1970s and in times of global conflict and war.
My second reason for holding a portion of my net worth in gold is that it serves as a safe haven and kind of financial insurance. We recently saw something that hasn’t happened before or at least in our lifetimes: Stocks and Bonds fell together. Usually when stocks fall, bonds rise as they traditionally serve as a risk of safe haven. Except when the world faces a sovereign debt crisis. There are few places for people to turn when all traditional assets fall so gold catches a bid and holds it own.
My third reason for owning gold is that it is an asset held outside the financial system. I think there are very real risks to the Canadian and global financial system. If these risks materialized there is the potential of a financial collapse where people could lose everything…all their assets including pensions etc.
Right now this risk seems a remote possibly but I’ve seen too many black swans and things that shouldn’t happen, happen to want to have all my eggs in one giant financial asset basket.
My final reason for owning gold concerns the lengths to which greedy, highly indebted and cash-strapped government will go to tax wealth. In Canada the vast majority of people hold their wealth in the banking system or in real estate. Both of which could be heavily taxed and/or seized in times of extreme financial stress. Just look at all the new tax ideas floated for Canadian real estate at the municipal, provincial and federal levels. Need I say more? Gold held outside the system shelters people from wealth tax plain and simple.
Save, Invest, Build Wealth and Prosper
In case you’re wondering here’s where we park our money and some financial services that we use (please note these are affiliate links where we receive small compensation for signups and sales):
For our precious metals and coin capsules, we use Silver Gold Bull because they price match and offer fast, insured, delivery.
We also own some crypto currencies like Bitcoin and Ether through Shakepay. If you’re interested in buying some here is our referral link to Shakepay and get $10 to try it out. We buy Bitcoin on Shakepay and transfer it to a Ledger cold storage wallet to keep our crypto secure.
For our Daily banking we use Tangerine because they offer incredible products and no-fee banking.
For investing we use Questrade because it offers incredible value with low cost stock purchases and free ETF purchases. If you haven’t done so already, check out my Questrade Review to see why it’s the best deal around. Get $50 in Free Trades when you signup for Questrade through this link.
Please note: this page contains affiliate links. As an affiliate, this blog receives a commission for each sign up for Tangerine, Shakepay, Borrowell, Questrade, Amazon, Silver Gold Bull and Bluehost.