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Canada has been holding out

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I guess the Canadians could of financially afforded a few more hockey teams.


Canada's Coin Stash Is Last Hurdle in Gold-Sale Plan (Update1)

Feb. 4 (Bloomberg) -- Canada's gold reserves have been reduced to a pile of loose change.


After more than two decades of what the Finance Department describes as ``gradual and controlled'' selling, Canada became the first member of the Group of Seven industrialized nations to sell all of its gold bullion when the last of its 20.9 million ounces left the Bank of Canada in December.


That leaves the central bank with 100,000 ounces of gold coins in reserves. And the Canadian government, which wants to complete a plan to clean the gold out of its Ottawa vaults, is unsure what to do with them.


``It's a different market than bullion,'' Finance Department spokeswoman Andree Houde said in an interview. ``What we decide to do can affect the value of the coins held by gold collectors.''


Canada has been selling off its gold reserves for almost 25 years, replacing them with assets that generate income, such as international bonds. The 21 million ounces of gold it had at the outset would be worth about $8.4 billion at current prices.


The federal government has made $13 billion selling its gold and investing the proceeds, Houde said. The G-7's other members - - the U.S., Japan, Germany, the U.K., France and Italy -- still hold bullion.


Gold Standard


Until 1971, when Former President Richard Nixon ended the ``gold standard,'' the value of the U.S. dollar was backed by the U.S. government's gold reserves. Countries such as New Zealand, Israel and Oman have since cleaned out their vaults of gold, according to the World Gold Council.


Canada dropped its gold standard in 1931 and began selling its reserves in 1980. Gold reached a record $850 an ounce that January, then dropped as low as $252.55 in August 1999. Bullion has since climbed back to about $400.


``The policy is still on,'' Houde said. ``The difference is that additional factors have to be considered.''


Houde declined to discuss the face value of the coins, their condition, or give any description, saying such information was commercially sensitive.


That makes it impossible to assess the value of the cache, and the effect the release of 100,000 ounces would have on coin prices, coin dealers contacted by Bloomberg News said.


Price Declines Feared


Cameron Bevers, who runs Colonial Acres Coins in Kitchener, Ontario, said he knows of only two types of coins the government could hold as reserves. The most likely would be the so-called Maple Leaf coins issued annually for the past 25 years by the Royal Canadian Mint, the government-owned coin maker.


Collectors have little interest in them outside their gold value, Bevers said in a telephone interview.


Alternatively, the government may have retained some of the 675,000 C$5 and C$10 gold coins minted between 1912 and 1914 to back the country's paper currency, said Bevers. A C$10 piece from 1914 might be worth C$1,000 to a collector, even though its gold value is only about C$250.


``I'd be annoyed,'' if the government suddenly released a large quantity of those coins, said Bevers, 29, who has been collecting since 1985 and dealing since 1991. ``If I was holding lots of them, it would be devastating.''


Some Favor Melting


Bevers said it's unlikely the Bank of Canada has much in the way of foreign gold coins, since there are so many of them in circulation that the government wouldn't be concerned with the impact of sales on market values.


Houde declined to say when the government might offer the coins for sale.


Canada also is considering options such as melting down the coins and selling them as bullion, she said. The 100,000 ounces in coins would have a bullion value of almost $40.2 million at today's gold price in New York of $401.70 an ounce.


Calgary dealer Robert Kokotailo favors that alternative, saying he doubts the government holds coins of value to collectors. If it does, and decided to sell them, his clients would be hurt, Kokotailo said.


``Could they be holding gold sovereigns from the early period?'' he asked in a telephone interview from his shop, Calgary Coin Gallery. ``If they are, that could cause a problem in the market for collectors of those coins.''




To contact the reporter on this story:

Kevin Carmichael in Ottawa at kcarmichael@bloomberg.net.


To contact the editor of this story:

Erik Schatzker at eschatzker@bloomberg.net.

Last Updated: February 4, 2004 16:26 EST

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It they did have 1912 and 1914 coins it would be stupid indeed to melt them down. They'll probably just hold them and sell the rest, or else trickle a few onto the market each year over many years.

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