(The Canadian Press)

Gold gets a lift as hedge with Canada’s deficit to surpass $340 billion

The precious metal hit another nine-year high and is making a run for US$2,000 an ounce

Canada’s main stock index moved higher along with gold prices Wednesday as the country’s deficit was projected to surpass $340 billion.

The precious metal hit another nine-year high and is making a run for US$2,000 an ounce, said Greg Taylor, chief investment officer of Purpose Investments.

“Gold is looking like a sector which is really doing quite well and should continue to keep going,” he said.

Gold is a hedge against inflation, and massive stimulus from central banks and governments brought on by the COVID-19 pandemic.

The Liberal government announced Wednesday details of how the virus has dragged down the domestic economy and is expected to send the deficit to a historic $343.2 billion.

“Canada’s number is definitely a lot worse than everyone expected and just symbolic of how governments around the world are printing money and spending so much on these different programs to keep the economies going.”

Materials was the brightest sector on the TSX, gaining nearly 2.1 per cent with shares of Wesdome Gold Mines Ltd. and Kirkland Lake Gold Ltd. increasing by 10.5 and 7.6 per cent respectively.

The August gold contract was up US$10.70 at US$1,820.60 an ounce and the September copper contract was up 2.7 cents at US$2.82 a pound.

Technology, industrials and financials were also higher as the S&P/TSX composite index closed up 33.69 points at 15,629.19 in a late rally.

In New York, the Dow Jones industrial average was up 177.10 points at 26,067.28. The S&P 500 index was up 24.62 points at 3,169.94, while the Nasdaq composite was up 148.61 points at 10,492.50.

The tech-heavy Nasdaq set another record close as Apple Inc. reached another high.

The Canadian stock market underperformed U.S. markets largely because of its makeup that is more focused on banks and commodities, and lacks the superstars that have kept the U.S. markets going, said Taylor.

“Canada has a few with Shopify being the most notable, but outside that we’re definitely underweight tech in the TSX and that’s been causing a lot of the underperformance.”

The Ottawa-based tech darling lost some ground, while Constellation Software Inc. rose 3.6 per cent and Lightspeed POS Inc. was up 3.3 per cent.

Cyclical sectors continue to be hurt by rising coronavirus infections in the U.S. that have investors fearing that the economy won’t be as strong in the second half of the year as some are expecting.

“Until we really get clarity on that, you’re going to get the cyclical sectors that are really going to be underperforming and people are going to be more focused on buying the tech stocks, which seems to be the sector that’s been the best to come out of this environment,” said Taylor.

Industrials was pushed up with Air Canada climbing 2.2 per cent.

Health care lost 2.2 per cent as Bausch Health Companies Inc. fell 5.7 per cent, while energy dropped nearly 2.1 per cent as the August natural gas contract was down 5.2 cents at US$1.82 per mmBTU. That sent Vermilion Energy Inc. down 4.8 per cent.

Crude oil prices rose on higher U.S. stockpiles while gasoline inventories fell by the most since March.

The August crude contract was up 28 cents at US$40.90 per barrel.

The Canadian dollar traded for 73.87 cents US compared with 73.62 cents US on Tuesday.

This week’s trading is relatively quiet before the start of corporate earnings next week.

Taylor said it will be interesting to see how second-quarter results will stack up against one of the stronger quarters in history for equity markets.

“So we’ll see how much of those gains are justified,” he said.

Although results are expected to be down from last year, Taylor said investors will be looking to see how different they are from the first quarter.

“And so far I think people are banking on that the quarterly reports are going to be better than what they were worried about initially.”

This report by The Canadian Press was first published July 8, 2020.

Companies in this story: (TSX:AC, TSX:SHOP, TSX:LSPD, TSX:BHC, TSX:CSU, TSX:WDO, TSX:KL, TSX:GSPTSE, TSX:CADUSD=X)

Ross Marowits, The Canadian Press

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