Posthaste: There's a new force driving the Canadian dollar — and it's pure gold
Gold is no longer just a shiny metal, it’s becoming a powerful force in the Canadian economy. In the past, the Canadian dollar was heavily influenced by oil prices, earning it the title of a petrocurrency. But times have changed, and now economists are pointing to gold as the new driver of the loonie.
Last Friday, despite negative GDP data, widening U.S.-Canada 2-year spreads, and a drop in oil prices, the Canadian dollar strengthened against the U.S. dollar. National Bank of Canada economists Stéfane Marion and Kyle Dahms attribute this resilience to the rise in gold prices. Gold has been soaring as traders seek safety from market sell-offs and bet on U.S. Federal Reserve rate cuts.
Canada’s trade surplus in gold has reached an unprecedented $44 billion, up from $30 billion a year ago. Marion and Dahms describe gold as the “dominant driver” of the Canadian dollar, surpassing the influence of oil and interest rates. This shift has been a long time coming, with oil prices losing their grip on the loonie as early as 2016.
The surge in gold prices shows no signs of slowing down, with the yellow metal gaining 30% this year alone. Both gold and silver have more than doubled over the past three years, driven by rising geopolitical and economic risks. Last week, gold surpassed its previous record high and continued to climb.
Not only has gold boosted the Canadian dollar, but it has also propelled Canada’s main stock index, the S&P/TSX composite, to a record high. Gold mining shares saw a significant increase, contributing to the outperformance of the TSX compared to the S&P 500 this year.
The impact of gold as a driver of the Canadian economy may have long-lasting effects. As the geopolitical landscape remains uncertain and economic risks persist, investors continue to flock to gold as a safe haven. The influence of gold on the Canadian dollar and the stock market is undeniable, marking a significant shift in the country’s economic dynamics.
