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Jul 19, 2019

Gold rally energized Canadian stocks even before Ray Dalio's essay

Why gold bugs may want to 'take some chips off the table'


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Billionaire investor Ray Dalio made headlines this week by asserting in a 6,000-word essay that gold should become a key part of every portfolio. Investors in Canadian gold stocks are way ahead of him.

Gold producers have been on a tear in Canada, keeping the benchmark S&P/TSX Composite Index near its all-time high. Companies, including Eldorado Gold Corp. (ELD.TO), Alacer Gold Corp. (ASR.TO) and Semafo Inc. (SMF.TO) make up half the index’s biggest gainers this year, while nine of the top 10 in the past month have been gold or silver producers. The gold firms have taken the reins from technology and pot stocks, which were the drivers earlier this year.

The S&P/TSX had been rising out of an ugly trough reached in December, in part thanks to Shopify Inc.’s (SHOP.TO) gravity-defying rally and several high-flying pot stocks. The gauge rose 12 per cent from beginning of the year though the end of May, outperforming the S&P 500.

During those five months, technology and pot/healthcare were the best-performing sectors, rising about 39 per cent and 31 per cent, respectively. Meanwhile, the materials sector had been languishing at the bottom of the 11-group list.

That all began to change in April. The broader market started to turn lower as trade-war jitters percolated and economic-growth concerns rose. Those issues, plus strengthening dovish signals from the U.S. Federal Reserve, nudged investors to gold as a haven.

By June, the precious metal was on a tear, trading near six-year highs, benefiting miners and pushing up the S&P/TSX. Helped by the rally in gold and silver mining stocks, materials became the best-performing sector from June 1 through Thursday, rising 17 per cent, while cannabis/healthcare became the worst, falling 6.6 per cent.

To be sure, technology and pot are still the Canadian index’s top two sectors this year. And materials stocks, which were the worst performers year-to-date until the end of May, are now among the top five.

There may be more room for gold to rise. Industry analysts are jumping on the bandwagon, according to Bloomberg data, which shows that, on average, industry experts are predicting that gold and silver prices will remain elevated heading into at least next year.


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