Gold hits new high on deficit surprise

TORONTO — Canada’s main stock index moved higher along with gold prices Wednesday as the country’s deficit surpassed $340 billion.

The precious metal hit another nine-year high and is making a run for $2,000 US 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 federal government announced Wednesday details of how the virus has dragged down the domestic economy and sent 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 $10.70 US at $1,820.60 US an ounce, and the September copper contract was up 2.7 cents at $2.82 US a pound.

Technology, industrials and financials were also higher as the S&P/TSX composite index closed up 33.69 points at 15629.19 in a late rally.

In New York, the Dow Jones industrial average was up 177.10 points at 26067.28. The S&P 500 index was up 24.62 points at 3169.94, while the Nasdaq composite was up 148.61 points at 10492.50.

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.

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 $1.82 US 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 $40.90 US 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.