Gold in today’s volatile market

Author: Ani Markova

February 14, 2018

In early January, we published a note titled “Are you worried about a correction?” where we discussed concerns regarding the uninterrupted run up in the equity markets. In the past week or so we have seen how quickly investors can re-price risk in the market and start to unwind positions. Between January 26th and February 9th, a period which spanned ten trading days, both the S&P 500 and the Dow Jones Industrial Average saw a 9% correction.

Although gold did not go up the way we expected it to in this market due to a rebound in the U.S. dollar, it did what it was supposed to do – it held its value vs. the equity markets (see charts below). Gold was actually flat in CAD, offering Canadian investors a wealth preservation tool.

Figure 1 – Gold vs. US and Canadian Equity Indices

Source: Bloomberg, as of February 9, 2018

The Outlook

We believe that the current run up in the U.S. dollar is more of a short-term rebound from a quick depreciation and that in the medium- to long-term, the dollar will resume its downwards trend on the back of stronger growth in international markets and too much debt in the U.S. We will watch carefully next month how the Chinese oil futures contracts quoted in RMB start trading, as this will be the first indication of the impact on the dollar from shifting away from a historic norm of pricing commodities in USD.

Figure 2 – U.S. Dollar Index Performance

 Source: Bloomberg, as of February 9, 2018

As we have highlighted before, portfolio diversification is important and finding the right type of diversification is key for wealth preservation. As long-term history shows, gold provides much needed protection against rising inflation and falling markets.


The commentaries contained herein are provided as a general source of information based on information available as of February 9, 2018 and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and the manager accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. We strongly recommend you consult with a financial advisor prior to making any investment decisions.
Any financial projections are based on the opinions of the portfolio managers and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements.
The contents are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances.

Written by

Ani Markova, MBA, LIFA, CIM, CFA

Vice-President and Portfolio Manager

AGF Investments Inc.

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