Podcast
Trump Tariffs, the U.S. Dollar and Gold
Will Simpson
January 1, 2025
Global Markets Have Been Strong Since the U.S. Election
Our indicators continue to suggest we are in a red light zone, as markets look to be overbought and overextended.
Of course, that doesn’t mean that markets will go down, correct or crash anytime soon. Markets may well keep moving higher, at least in the short term. Our indicators are showing momentum and strength for the time being, and have not reversed or changed as of yet. We have stayed invested in our highest-quality names and positions, so we are still participating and capturing more than our fair share of market upside.
In our investment process, we move from offence to defence based on changing market conditions. And when market conditions shift, and the corresponding opportunities and risks change, we move the portfolio accordingly.
In the last few weeks, we have been getting a post-election rally. But as headlines start to fly in in the coming months, I would not be surprised if markets become more volatile. With another Trump presidency, you have to expect the unexpected and be ready for anything.
Global markets had a strong week, with most major indices posting gains, except for emerging markets. The S&P 500 rose 1.2% and the Nasdaq added 1.3%, showing solid momentum despite the American Thanksgiving break. European stocks performed well, with the Euro Stoxx 50 up 1.9%, while Japan’s Nikkei 225 led the pack with a 3.4% surge. Meanwhile, the MSCI Emerging Markets Index slipped 0.5%, dragged down by U.S. dollar strength and trade talk. The TSX was up 0.6% this week in spite of all of the noise around tariffs.
The trade war tango has begun following President-elect Donald Trump’s somewhat surprising announcement of a potential 25% tariff on all imports from Canada and Mexico. The market reaction to a U.S. tariff was intense but short-lived in Canada. The Canadian dollar initially fell to its lowest level since April 2020 but has since steadied.
Rather than Canadian dollar weakness, we are more concerned about Canadian manufacturers, railways and energy companies with direct exposure to the potential tariffs. Our technical indicators and relative strength process have kept us out of and away from those sorts of names for some time. That being said, the potential for new tariffs, though severe, remains uncertain and may be a negotiating tactic ahead of the United States–Mexico–Canada Agreement renewal in 2026.
Post-election, the U.S. dollar is showing continued strength, and to us, it looks overbought and overextended. The loonie immediately reacted to the trade talk, falling well over a penny in late evening trading after the announcement, while it regained some ground during the day. This news drove the Canadian dollar to its weakest level since April 2020. With U.S. dollar positioning and valuations stretched, the Canadian dollar is technically oversold.
If the U.S. dollar were to revert back, that would act as a tailwind for gold. The price of gold often, but not always, goes in the opposite direction of the U.S. dollar. Gold retreated following the election as money parked in the yellow metal in case of trouble or a contested election moved back out. But that sale didn’t last long as gold is steadily recovering. Both gold and gold miners act as unique diversifiers for portfolios.
We are fond of gold exposure for a few key reasons: Crisis Alpha & USD hedge. Gold and gold miners have a very strong track record of providing a stabilization factor for portfolios during times of market trouble. One could say this is what bonds provide, but if the market trouble is caused by debt or inflation concerns, bonds often fall short. For us, having some gold diversification under these potential scenarios simply makes sense. Gold also provides a hedge in case the US dollar declines. It has not happened yet, but it’s a risk.
Gold exposure certainly isn’t for everyone, as many investors carry some scars from this space. However, gold does provide a rather unique kind of defence for a portfolio that may be needed if inflation picks back up, the bond market loses faith in government, or the US dollar moves into a downward trend after going up for the last decade plus.
At Aretec Wealth, our investment philosophy is to bring a tactical, active, and dynamic approach to navigating markets.
Tactical investing allows us to better manage risk and capitalize on market opportunities.
We want to participate and invest in the good times, and capitalize when markets are strong.
Inevitably, there will be market pullbacks, corrections and crashes, and we want to help you do a better job of navigating the downside and uncertainty when markets are weak.
We take a different approach to navigating markets because we want a better outcome and bottom-line results for you.
We want you to Realize Your Wealth™.
Best,