Gold Helps Canada’s Stocks Benchmark Outshine the S&P 500

How Gold Helped Canada's Stock Market Outshine the S&P 500

Canada's stock market has been on a remarkable run, delivering impressive returns that have caught the attention of global investors. The stellar performance hasn't been driven by the usual suspects—instead, the precious metals sector, particularly gold, has emerged as the unlikely hero powering Canadian equities to new heights.

Canada's Gold-Powered Market Performance

The first half of 2025 has been exceptionally strong for the Canadian equity market, with the S&P/TSX Composite Index climbing an impressive 8.6% through June. This performance significantly outpaced the S&P 500, which advanced 5.5% during the same period. When measured in US dollar terms, the outperformance becomes even more striking, with the Toronto benchmark delivering a remarkable 15% return.

"No doubt that it's been driven by gold," explains Sadiq Adatia, Chief Investment Officer at BMO Asset Management Inc. His assessment is backed by data showing that gold and silver stocks contributed approximately half of the S&P/TSX gains through mid-June, according to gold prices analysis from Simon Fitzgerald-Carrier at Bank of Nova Scotia.

The gold sector's contribution has been substantial enough to reshape the overall performance narrative of the Canadian market. Without the precious metals boost, the TSX would likely have delivered returns much more in line with its American counterpart.

Performance Leaders in the Gold Sector

The gold market surge has created some impressive individual stock performances. Lundin Gold Inc. emerged as the standout performer, surging nearly 135% in the first half of 2025. The company's exceptional operational results at its Fruta del Norte mine in Ecuador, characterized by high-grade deposits yielding over 9 grams per tonne, have fueled investor enthusiasm.

Other precious metals companies have also delivered impressive gains, with four of the top ten performers in the S&P/TSX Composite Index coming from this sector:

"The run in gold and silver stocks through the first half of 2025 has been nothing short of exceptional," wrote Simon Fitzgerald-Carrier in a recent note to clients.

Drivers Behind Gold's 2025 Rally

Multiple factors converged to create the perfect environment for gold's ascendance, with both macroeconomic and geopolitical catalysts playing crucial roles.

Economic Uncertainty and Safe-Haven Demand

The primary catalyst behind gold's impressive performance has been investor flight to safety amid economic uncertainty. President Trump's threats to impose new tariffs' impact on markets created significant anxiety about global growth prospects, pushing investors toward traditional safe-haven assets.

"When uncertainty rises, gold typically benefits," explains mining analyst Maria Smirnova of Sprott Asset Management. "The metal has historically performed well during periods of trade tensions, as we saw during the 2018-2019 US-China trade disputes."

The precious metal's appeal as a portfolio diversifier and hedge against uncertainty became particularly pronounced as investors sought protection from potential market turbulence.

Geopolitical Tensions

Ongoing conflicts in the Middle East further reinforced gold's appeal as a safe-haven asset. The metal has historically performed well during geopolitical crises, and the situation was no different in 2025. Regional instability created additional demand for gold as investors looked to reduce portfolio risk.

Portfolio Protection Strategy

Beyond immediate reactions to market events, investors have increasingly embraced gold as a strategic component of diversification strategies. This trend represents a shift in thinking about asset allocation, with more managers viewing precious metals exposure as essential rather than optional.

"You need to have things that can bulletproof your portfolio, and gold is the one that does that the best," notes BMO's Adatia, highlighting the metal's role as a portfolio insurance policy during volatile periods.

This sentiment has been echoed by institutional investors who have increased their strategic allocations to gold, moving beyond tactical positioning to incorporate the metal as a core holding.

Will Gold's Outperformance Continue?

While gold delivered exceptional returns through the first half of 2025, market observers are divided on whether this momentum can continue through year-end.

Changing Risk Dynamics

By late June, some of the key catalysts that propelled gold higher began to dissipate. Geopolitical tensions showed signs of easing, and the initial shock from trade policy uncertainty began to fade. These developments triggered a modest pullback in gold prices from their record highs.

"I don't think gold is going to have the same run in the second half that it had in the first half because a lot of the ambiguity and the uncertainty that we were facing earlier on has subsided," cautions Adatia, suggesting investors may need to temper their expectations.

Broader Market Challenges

Beyond gold-specific factors, Canadian stocks face other headwinds that could impact overall market performance. Revenue forecasts for S&P/TSX members have declined "notably" since April, according to Bloomberg Intelligence strategist Gillian Wolff.

The energy sector has been a particular source of weakness, creating a disproportionate drag on overall index expectations. With oil prices remaining under pressure, this segment may continue to offset some of the positive momentum from precious metals.

Technical Price Action

From a technical perspective, gold's price action showed signs of exhaustion after reaching new all-time highs above $2,450 per ounce in mid-June. The subsequent pullback has technical analysts watching key support levels to determine if the uptrend remains intact.

"Gold's technical picture suggests we may be entering a consolidation phase rather than a continued uptrend," notes veteran gold market analyst Jeffrey Christian of CPM Group. "After such a strong move, some consolidation would be healthy for the market's longer-term prospects."

Beyond Gold: Other Factors Supporting Canadian Equities

While gold has been the headline story, several other factors could continue to support Canadian equities through the second half of 2025 and beyond.

Sector Diversification Advantages

The S&P/TSX's heavy weighting toward materials, energy, and financials has created a unique value proposition for global investors seeking sector diversification. As portfolio managers look to reduce technology exposure following years of outperformance, Canada's market composition offers a natural alternative.

"Canada provides exposure to sectors that are underrepresented in the S&P 500," explains Lesley Marks, Chief Investment Officer of Equities with Mackenzie Investments. "This structural difference makes the TSX an attractive diversifier for global portfolios."

Political Leadership and Economic Policy

The economic policies championed by Prime Minister Mark Carney have created a more investment-friendly environment that could support continued equity market strength. Carney's pro-growth, pro-investment stance has been well-received by domestic and international investors alike.

"There is a fundamental story around Canadian stocks because of policy changes from our government," Marks notes, highlighting the importance of the policy environment for market sentiment.

Compelling Valuation Gap

Perhaps the most compelling case for Canadian equities lies in their relative valuation. The S&P/TSX was trading at approximately 17 times earnings as of June 2025, compared to the S&P 500's multiple of 24 times.

This substantial valuation discount provides a potential cushion against market volatility and could attract value-oriented investors seeking more reasonably priced opportunities in an environment where many global markets appear expensive by historical standards.

Resource Sector Performance Beyond Gold

While gold miners have led the Canadian market higher, other resource sectors have shown more varied results, creating a nuanced picture of commodity-related performance.

Mixed Results Across Mining Subsectors

Base metals miners have delivered inconsistent performance, with results largely dependent on exposure to specific metals:

• Copper producers: Benefited from supply constraints and electrification demand
• Nickel miners: Struggled with increased supply from Indonesia
• Lithium companies: Faced continued pricing pressure from oversupply concerns

The divergence highlights the importance of commodity-specific fundamentals rather than broad-based resource sector strength.

Energy Sector Headwinds

Unlike gold, the energy sector has faced significant challenges, acting as a drag on the broader index. Oil price volatility and concerns about long-term demand have weighed on investor sentiment toward Canadian energy producers.

"The energy sector's underperformance has partially offset gold's positive contribution," explains Wolff. "Without this drag, the TSX's outperformance versus the S&P 500 would have been even more pronounced."

Investment Considerations for the Gold-Heavy Canadian Market

For investors evaluating opportunities in the Canadian market, several factors merit consideration beyond the headline performance numbers.

Diversification Benefits

The TSX offers exposure to sectors that are underrepresented in the S&P 500, providing natural diversification benefits for global investors. The significant weighting toward materials and resources creates a portfolio that behaves differently from technology-heavy US indices.

"Canadian stocks have historically shown a lower correlation with US equities during certain market environments," notes portfolio strategist Richard Bernstein. "This diversification benefit becomes particularly valuable during periods of market stress."

Commodity Cycle Sensitivity

While diversification is beneficial, investors should recognize that the TSX's heavy resource exposure creates sensitivity to commodity price cycles. Performance can swing dramatically based on the direction of key commodity markets, particularly gold, oil, and copper.

This cyclicality creates both opportunities and risks, depending on the stage of the commodity cycle and broader economic conditions.

Currency Considerations

For international investors, currency movements significantly impact returns. The 15% USD-term return of the TSX in the first half of 2025 included both price appreciation and Canadian dollar strengthening.

"The Canadian dollar tends to be influenced by commodity prices, particularly oil," explains currency strategist Bipan Rai of CIBC Capital Markets. "This creates a natural correlation between resource stock performance and currency movements that can either amplify or diminish returns for foreign investors."

Valuation Opportunity

The substantial valuation gap between Canadian and US equities presents a compelling case for investors. With the S&P/TSX trading at 17 times earnings versus the S&P 500's 24 times, Canadian stocks offer a relative value opportunity that could provide both downside protection and upside potential.

This valuation advantage exists despite the strong performance already delivered, suggesting the Canadian market hasn't become overextended despite its outperformance.

Understanding Gold's Role in Portfolio Strategy

For investors considering gold exposure, whether through mining stocks or direct metal ownership, understanding the unique characteristics of gold investments is essential.

Historical Performance During Uncertainty

Gold has consistently demonstrated its value as a safe-haven asset during periods of economic uncertainty. During the 2008 financial crisis, gold significantly outperformed equities, and a similar pattern emerged during the COVID-19 market disruption in 2020.

This counter-cyclical nature makes gold particularly valuable for portfolio diversification, explaining its strong performance during the first half of 2025 amid trade tensions and geopolitical concerns.

The Canadian Gold Mining Advantage

Canada's stock market offers unique exposure to the global gold industry, with many of the world's largest producers listed on the Toronto exchange. This concentration creates both opportunities and risks for investors in the Canadian market.

"The TSX has a significantly higher weighting of gold mining companies compared to other major indices," explains Joe Mazumdar, economic geologist and mining analyst. "This structural difference explains why gold price movements have an outsized impact on the Canadian benchmark."

Currency Effects on Mining Profitability

Canadian gold producers often benefit from currency dynamics that enhance profitability. Most gold miners operating in Canada have cost structures denominated in Canadian dollars while their revenue is effectively tied to US dollar gold prices.

This creates a natural hedge that can amplify returns during periods when the Canadian dollar weakens against its US counterpart. Conversely, a strengthening Canadian dollar can squeeze margins even when gold prices remain stable.

"The currency effect essentially provides operational leverage to gold prices for Canadian producers," notes mining analyst Kerry Smith. "A 5% move in the USD/CAD exchange rate can significantly impact production costs and profitability."

Balancing Opportunity and Risk in Gold-Driven Markets

The gold-driven outperformance of Canadian equities highlights both the opportunities and risks inherent in commodity-focused markets. Investors should carefully consider both the potential benefits and drawbacks when allocating capital to this sector.

"Gold miners have delivered exceptional returns, but investors should remember that these companies operate in a cyclical industry with unique challenges including reserve replacement, regulatory hurdles, and operational complexities," cautions veteran mining analyst John Tumazos.

As market conditions evolve through the remainder of 2025, the interplay between gold prices, broader economic factors, and company-specific developments will determine whether Canada's stock market can maintain its edge over US equities.

For now, gold's shine has certainly helped Canada's stocks benchmark outshine the S&P 500, creating opportunities for investors willing to look beyond traditional US-centric portfolios. Many undervalued gold stocks remain available for investors looking to capitalize on this trend, according to recent analyses from leading investment banks.

Looking for the Next Major Gold Discovery?

Discover significant ASX mineral discoveries before the market does with Discovery Alert's proprietary Discovery IQ model, which transforms complex data into actionable investment insights for both short-term traders and long-term investors. Explore why major mineral discoveries like those from De Grey Mining can generate substantial returns by visiting Discovery Alert's dedicated discoveries page.