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Gold Stocks Shine in Toronto as Yawning Rate Gap Pummels Loonie
(Bloomberg) -- As Canada’s currency weakens, fund managers are leaning into sectors that pay expenses in the local currency while collecting revenue in US dollars. That has made buying stocks in gold miners a jackpot trade as the so-called loonie is expected to fall further.
If the Bank of Canada cuts interest rates by 25 basis points on Wednesday, while the Federal Reserve holds steady — outcomes expected by swaps markets — the rate differential would stretch to 150 basis points, based on the upper bound of the US benchmark rate. That would likely push Canada’s dollar even lower, a boon for a handful of Canadian companies.
Laura Lau, chief investment officer at Brompton Corp., said Toronto-listed gold miners like Agnico Eagle Mines Ltd. and Alamos Gold Inc. have the benefit of paying their costs in Canada’s currency and selling their production in US dollars. A weaker loonie can actually expand their margins.
Gold stocks have been a standout sector this year. The 26-member S&P/TSX Gold subindex has climbed 9% in 2025 — more than three times better than the broader S&P/TSX Composite Index. Five of the top 10 performing stocks in the Canadian benchmark are gold names, including Kinross Gold Corp., which leads the group with a 15% gain.
Also, the BetaPro Canadian Gold Miners 2x Daily Bull ETF has seen two straight months of inflows, marking its longest such streak since February. The miners’ gains are outpacing the price of gold, up about 3.7% this year.
Lau is also looking at Canadian insurance names like Manulife Financial Corp. and Sun Life Financial Inc., which have large US businesses that earn in US dollars, and, since they offer a service rather than an exported good, won’t be subject to tariffs from US President Donald Trump.
Usually, Canada’s oil and gas producers would also benefit from a weaker loonie, but the country’s energy sector is seen as a target for US import taxes.
Trump’s threats, combined with political instability in Canada, have dragged the loonie down to trade around its lowest levels since 2020. Traders are betting on the downturn to persist, potentially to a record low this year.
Colin Cieszynski, chief market strategist at SIA Wealth Management Inc., expects the Canadian dollar to continue weakening and for investors to consolidate in sectors like gold and copper.
“You still have the weaker Canadian dollar helping them,” he said.
In the face of anemic growth, the BOC has been “hitting the panic button” with consecutive half-point cuts to close out 2024, Cieszynski said. In contrast, Fed Chair Jerome Powell has said the US central bank should look to ease monetary policy at a slower pace, pointing to a strong domestic economy.
Many strategists and fund managers in Canada have adjusted their playbooks for 2025 in response to the growing rate differential with the US, as well as the threat of tariffs from Trump.
Jim Thorne, chief market strategist at Wellington Altus Private Wealth, says investors should focus on US stocks, where he sees stronger prospects for earnings growth.
Others see Canada’s broader market on an upswing. Brian Madden, chief investment officer at First Avenue Investment Counsel, said Canadian corporate earnings hit their trough in the third quarter of 2024, and he expects double-digit growth this year.
“There’s good scope for the TSX to continue moving higher and it’s driven by earnings growth,” he said.