Opinions
Javed Mirza A Comment -- General Comments From an Expert A Commentary COMMENT Jun 05, 2025
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Gold is a key beneficiary of uncertainty and "chaos". It's done well since the US election being up about 20%, and YTD even more. It will continue to benefit from the uncertainty and wild swings.
Though the market has recovered from April, no one's sure from a sector-to-sector basis what President Trump will do in terms of tariffs. Recent moves in aluminum and steel, but we're still quite a ways from understanding the overall goal and where things will ultimately settle.
All this is beneficial to gold in the short and medium terms, but at the end of the day his long-term perspective on gold is continued central bank buying. Central banks have realized the need to diversify away from the USD, which probably started with the Russian invasion of Ukraine. It woke up the world to the fact that not everything is as secure or stable in the world as you think. People are worried about US debt, running GDP deficits, and so forth. Drives people to reevaluate how they want to own the USD and perhaps diversify into something like gold.
The way equity markets are positioned, we're seeing technically a new intermediate term, 3-6 month rally phase take hold. That should have upside into August.
His team is kind of perplexed where we are in the market cycle. At the start of the year, they warned clients that a 4-year-cycle reset was going to take hold. Typically, that's a 15-20% correction lasting around 34 weeks. He thinks that's what we saw during the tariff tantrum, but the recovery was so quick. The real risk is that we are starting a cycle reset. He needs more confirmation of which way the economy is heading.
In Canada, seeing basic resources really leading the charge. Lots of interest in gold. Industrials are beginning to pick up. In general IT has been the leader of this bull run, especially in the US. It's shown leadership in Canada as well; though has come off over the last couple of months during this corrective phase, it's trying to reassert its leadership position.
The bigger allocation is moving away from the US dollar, potentially as reserve currency status. What's happening geopolitically is going to be reflected in the financial arena as well, and we're seeing that in the dollar.
The TSX made new highs, but the S&P 500 and Dow still haven't reclaimed that level. That's really positive. We're seeing the TSX take the pole position in North America. Everything he's seeing is quite positive for the TSX in general.
Seeing a catch-up trade. Pushing toward key resistance around $36; if we can get above that, next key level will be $40. Technicals on silver definitely look strong.
Broader picture and big impetus in silver and precious metals is the USD. The DXY is trading at a key level right now and testing recent lows. If you look at a 3-year chart, you can see quite clearly how it peaked near the end of last year and has been heading lower ever since. Commodities are priced in USD, so if the dollar's heading lower, that will be a tailwind for commodity pricing. Think natural gas, copper, gold, silver.
August is the precursor to September, which is historically the weakest month of the year for equity markets. Both for the TSX and the S&P 500. You see a lot of corrections take place.
His work shows that we've worked through the tariff tantrum, stocks are repairing themselves, price momentum is improving, and risk-on areas of the market are strengthening and accelerating. All of this supports a push higher into August.
He deploys capital into businesses when he thinks he can understand what that business will look like in 5, 10, or even 20 years. So short-term noise isn't something he pays attention to, because it's beyond his control.
Still, when things get cheaper due to downside volatility, he has prices in mind for securities that he already owns or would like to own. Right now, he owns 28 businesses on behalf of clients. He's been nibbling a bit over the last few months. This year, he's only added one business so far. He remains a patient, long-term investor.
He favours exclusively high-quality businesses, though that is a buzzword that gets thrown around. He defines it primarily as a company's ability to generate above-average, consistent returns on invested capital (ROIC). You're looking at the profit in relation to how much capital needs to be invested to generate that profit.
Beyond that, he favours founder-run, founder-owned businesses. Likes to align with people who have significant skin in the game. Asset light, low debt. A company also has to be within his team's circle of competence and comfort zone, so it has to be a business that they can understand. Some things these days are just beyond his understanding or he can't foresee what it they'll look like in 5 years.
They're very much bottom-up investors. So they screen for their criteria, and they end up with businesses sort of putting up their hands saying "I'm a high-quality business, or a potential one, that you should look at". So he doesn't wake up in the morning as say he should find an energy, healthcare, or technology stock.
Typically, some sectors have a higher concentration of companies that could meet his criteria. Information technology is one area to which he has a fair amount of exposure. The flipside would be sectors where they don't find high-quality businesses; unfortunately, those tend to be the ones (like financials, energy, materials) that dominate the Canadian marketplace. They may require too much capital, or simply don't have the ROIC he's looking for.
As a productivity tool, it's here to stay. It will dramatically change a lot of industries and how people work. What isn't clear is who's going to win the race from an investment standpoint. Go back to commercial air travel in the 1930s and 1940s, it was obvious that it was going to change the world. Same thing with internet changing the world.
He likes to use the analogy of a running race. He likes to be on a runner once the race has already started. He's not looking for AI-specific stocks, but META is really involved with AI. You can see in that case how the application of AI is going to lead to more efficiencies, greater productivity, and hopefully higher returns on advertising spend. META already has an established business, and it's using AI as a tool to drive the business forward.
Otherwise, it's too early in the race to make a call on any AI-specific company to be the winner.
The best way to do it is to scale in, and that's what a lot of the top traders do. We're human, and we all have that fear of missing out. But then we wonder if we're buying at highs, and the rug's going to be pulled out from under us.
Define the trend, and you want a trend that's up. Within that trend, continue to allocate as long as that trend remains positive. Start with 10-20% of your total investment goal, and see what happens. If a week or two later you're in the green, that's telling you that the market's agreeing with what you're doing. You can then add more exposure. Best of both worlds. If it does pull back, you haven't allocated your full position; if it moves higher, you aren't panicking about rushing in, because you're already there.