January 2025
In delivering the first international speech of his second mandate by video from the White House at the World Economic Forum in Davos, United States President Donald Trump reiterated his tariff threats against Canada and the European Union while also warning other countries of potential tariffs if products are made outside of the U.S.1 The President also urged OPEC to lower oil prices and central banks across the world to lower interest rates. In declaring a “national energy emergency”, Trump will focus on transforming U.S. energy. In addition to supplying oil into the U.S. in order to meet their demand deficit, Canada has been supplying 50–80 per cent of (the U.S.’s) needs in zinc, tellurium, nickel, and vanadium, with “abundant reserves” of cobalt, graphite, lithium, and other metals.2 It will be challenging for the U.S. to impose tariffs without damaging U.S. economic growth and running up inflation. In January, we maintained the twelve-month forward outlook to reflect our view for Stagnation (U.S. Real GDP growth less than 2.5%) over the next twelve- month period.
The Chinese economy expanded by 5.4% in Q4 2024. It was the strongest annual growth rate in 1-1/2 years, boosted by a series of stimulus measures launched since September. For the full year, the GDP grew by 5.0%.3 China’s trade surplus soared to USD 104.84 billion in December 2024, up from USD 75.31 billion in the same period a year earlier, driven by a surge in exports. For the full year of 2024, the trade surplus was at USD 992.16 billion, with exports advancing 5.9% to USD 3.58 trillion while imports rose at a softer 1.1% to USD 2.59 trillion.4 The annual inflation rate in the Euro Area accelerated for a third straight month to 2.4% in December of 2024.5
The annual inflation rate in the U.S. rose for a 3rd consecutive month to 2.9% in December.6 The unemployment rate in the United States went down to 4.1% in December from 4.2% in the previous month.7 The trade deficit in the U.S. widened to $78.2 billion in November. The U.S. deficit was little changed with China ($-25.4 billion vs $-25.5 billion) and Mexico ($-15.4 billion).8 The Consumer Price Index in Canada decreased 0.4% month-over-month in December, the first decline in three months.9 The unemployment rate in Canada eased to 6.7% in December, down from 6.8% in the previous month.10 Exports to the U.S. rose 6.8%, widening the surplus with the U.S. from CAD 6.6 billion to CAD 8.2 billion, while exports to other countries fell 10.3%, widening the non-U.S. trade deficit from CAD 7.2 billion to CAD 8.5 billion.11
A pullback in December led to the U.S. S&P 500 finishing the year up 25.02%, closing out the best two year run since 1998. The S&P Midcap 400 and S&P SmallCap 600 were up 13.9% and 8.7%. The S&P/TSX Composite increased 21.7% in 2024. The S&P Europe 350 shed 2.5% in the final quarter but finished 2024 with a 9.7% total return. The United Kingdom was the brightest spot, contributing +3.5%, followed by Germany with a 2.4% contribution. Pan Asia equities slipped in the last month of the year, with the S&P Pan Asia BMI posting an annual return of 9%.
In January, we maintained all exposures held in December. We use diversifiers including short duration U.S. fixed income exposure as yields are expected to respond to renewed inflation. Many assets become increasingly correlated as market uncertainty rises and volatility is more pronounced. Gold is different in that its negative correlation to equities and other risk assets increases as these assets sell off. Gold is held across all models as a long-term strategic asset, playing a role as an effective hedge against the heightened geopolitical uncertainty and market volatility that is currently in play.
The U.S. budget gap is the largest among the Group of Seven advanced economies. The combined deficit for federal, state, and local governments in the U.S. will top 7% of economic output in 2025, according to International Monetary Fund projections.12 With the U.S. forging ahead with a protectionist and predatory agenda, foreigners are less likely to be as willing to underwrite U.S. consumption. We stand by our view that volatility is best managed using our top-down focus. We expect gold to benefit from continuing strong central bank and investor demand, which has been offsetting declining consumer demand, heightened geopolitical risk due to increased conflicts, and from periods of opportunity costs when markets saw lower yields and a weakening U.S. dollar. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.
Deborah Frame, President and CIO
Drew Millard, Portfolio Manager
1 World Economic Forum, Davos. January 2025.
2 Natural Resources Canada. December 2024.
3 Trading Economics. China GDP. January 17, 2025.
4 Trading Economics. China Trade. January 13, 2025.
5 Trading Economics. EU Inflation. January 17, 2025.
6 Trading Economics. U.S. Inflation. January 15, 2025.
7 Trading Economics. U.S. Employment. January 10, 2025.
8 Trading Economics. U.S. Trade. January 7, 2025.
9 Trading Economics. Canada Inflation. January 21, 2025.
10 Trading Economics. Canada Employment. January 10, 2025.
11 Trading Economics. Canada Trade. January 7, 2025.
12 International Monetary Fund. November 2024.
Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. December 31, 2024. Index performance is based on total returns and expressed in the local currency of the index.
