David Rosenberg: How did the Canadian market hit a new record? Gold exposure has helped

The TMX Group headquarters in the financial district of Toronto on April 24, 2025. Photo by Laura Proctor/Bloomberg

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Despite a flurry of twists and turns in the constantly evolving tariff saga, a period of relative calm has ensued after the chaos of tariff announcements and the early April market selloff, triggered by “Liberation Day.” As the third-largest trading partner of the United States, Canada has fared relatively well after being excluded from the Liberation Day tariffs and having Canada-United States-Mexico Agreement-compliant products excluded from the 25 per cent “fentanyl” tariffs.

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Helped by the 90-day tariff reprieve, set to expire July 9, the ongoing constructive tone in tariff negotiations helped the Canadian cyclical bucket, as industrials (driven by another tailwind explained below) and financials performed well during this timeframe.

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It was a complete reversal of what we experienced in February and March, when market sentiment was dominated by the height of tariff fears and defensive plays (such as dollar stores and utilities) were outperforming. So much so that we saw both the S&P/TSX industrials index and the S&P/TSX financials index post double-digit returns during these 17 trading days — a nice juicy return from a sector rotation perspective.

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To a large extent, what investors liked in the latest banking sector reporting season was the move to get ahead of the consumer delinquency cycle and sharply bolster loan loss reserve provisioning.

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In turn, this helped the overall Canadian benchmark, given its relative valuation support, namely, trading at about a 16x forward P/E multiple versus more than 21x for the S&P 500.

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The shiny metal

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From a sector-positioning perspective, another crucial pillar of strength was derived from the gold miners’ price performance, boosted by the recent rally in gold prices to around US$3,400 per ounce and up nearly 30 per cent year to date.

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In contrast to the S&P 500, which has but one miner in the index (Newmont Corp.), which accounts for 0.1 per cent of the market cap, Canada is replete with 27 members that comprise a much higher 8.9 per cent share of the S&P/TSX composite index. The exposure the Canadian index has to precious metals is so precious that the sector has been responsible for half of the 7.3 per cent advance so far in 2025.

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Gold has continued to benefit from the convergence of structural tailwinds, such as the global monetary debasement, sovereign fiscal largesse and its traditional role as a macro hedge against geopolitical uncertainty. Rising bullion prices, combined with still relatively low valuations for the gold miners, have provided extra torque to the positive contribution by the materials sector during this timeframe.

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A case in point is Newmont, the largest miner by market capitalization, which trades at a 13x NTM P/E, vs. its five-year historical average of 20x.

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According to CIBC Capital Markets, mining has accounted for approximately 40 per cent of new Canadian issuances on a year-to-date basis. Consequently, this strong price performance from the precious metals sector (comprising about 11 per cent of the S&P/TSX composite) has resulted in underweight generalist funds adding exposure.