“Letting the days go by… same as it ever was, same as it ever was”
– “Once In A Lifetime,” 1981, Talking Heads
January’s theme could be “same as it ever was,” the chorus of “Once In A Lifetime,” the platinum hit by the new-wave band Talking Heads. We generally equate January with a fresh start, but instead the major themes from 2025 carried forward. Unfortunately, the dour headlines persisted, but so did the positive results for stocks and bonds supported by a host of positives that underpin the global economy. Capital markets are also continuing to send important feedback that functions as a guardrail to world leaders’ decision-making.
The party was interrupted mid-month and on the last trading day. A fright from the Japanese government bond market, President Donald Trump’s Greenlandic overtures (intensified then modified), and his nomination for the next Federal Reserve chair impacted the markets.
At the end of it all, some themes were shifting (strength for gold and U.S. dollar weakness). But for the month, it was mostly the same as it ever was. Non-North American equity markets led the way – Europe, Japan and emerging markets stocks continued their run. Shares of small- and medium-sized businesses (SMIDs), which came alive in the second half of 2025, continued to rip. Shares of SMIDs are exiting a multi-year walk in the wilderness, where they underperformed and therefore remain undervalued on many metrics compared to their large-company cousins.
Canada takes a breather
Canadian equity markets were set to dominate thanks to our market’s heavy exposure to precious metals mining, which drew global attention. Then, on January 30, the intraday price for gold fell more than 12%, marking its steepest decline since the early 1980s, and silver plunged a record 36% intraday. The S&P/TSX managed to hang on to a 0.7% gain for January, but it was up almost 5% on the month before the final day of trading. The Canadian Small Cap Index, which has even more exposure to gold mining than the TSX, was up a whopping 17% for the month before the price correction in precious metals. After the rout, the monthly tally was still a hefty 8.6%, adding to the 50% gain it made in 2025.
Gold fever boils then breaks; the greenback bounces
Most of January featured another rhyming couplet from 2025: weakness in the greenback and gold on the fast track. From early 2024, prices for the yellow metal have been on a nearly straight-upward tear, and since January 2025 the U.S. dollar has been weakening. The downward shift in the greenback and upward swish in gold are being driven by several factors: geopolitical unrest; shifts in the post-war era world order; trade wars; worry about sticky inflation; rising government debt loads; currency debasement fears; and concern whether the Fed would remain free from political pressure.
For the first three weeks of January, several events hyper-charged the themes around world order, Fed independence and government borrowing. In the U.S., it was military action in Venezuela and Greenland ambitions. Later, President Trump turned up the heat on Fed independence (again) while also musing that a weak U.S. dollar isn’t such a bad thing. In Japan, government borrowing costs rose dramatically in response to a snap election called for February 8 that could potentially usher in more government stimulus. These developments propelled gold’s strength and the greenback’s weakness into overdrive. The U.S. dollar fell 3% in a week, and prior to the selloff, bullion was up 17% for the month – on top of its 65% gain in 2025.
After violent price moves like that, conditions were ripe for a correction. Some of the anxiety driving gold and the U.S. dollar had abated, thanks in no small part to feedback from capital markets. Swooning stocks and rising bond yields prompted a change in tone from Washington and Tokyo, leaving Japanese bond-yield scares, Venezuela and Greenland to fade from the front pages.
The accelerant for the reversal of fortune for gold and the greenback was the Trump administration’s nomination of Kevin Warsh to lead the Fed. He has a hawkish reputation on inflation and is a proponent of a smaller Fed balance sheet. His appointment was a surprise (and is long-term positive) because it curbs (but doesn’t eliminate) uncertainty over Fed independence, U.S. inflation and money-printing – the very worries that were propelling gold higher and the U.S. dollar lower.
Notably, and a sign that the volatility is more about the parabolic rise of precious metal prices, North American government bond yields were reasonably stable throughout the month-end turmoil. And while Canadian stocks took a drubbing on the last day of January, the loonie kept most of its earlier-month gains.
Gloomy headlines continue – so does their lack of impact
We’ll add another “same as it ever was” theme from 2025 – the headlines are the headlines, but earnings are everything. Unless geopolitical developments threaten to dampen global growth or increase costs (inflation, oil prices, wages, taxes or borrowing costs), markets focus on earnings and rightly so. Venezuela and Greenland don’t move the needle on any of these fronts. Maybe Iran will for oil – we remain watchful, but since the world is awash in oil, the impact could be limited. Borrowing costs are reasonable, and both the Fed and Bank of Canada held rates steady (i.e., more of the “same as it ever was”).
Even though the capital markets were somewhat agitated in January (same as it ever was), it was also status quo: the factors most important to investors carried the day. Specifically, consumers kept their wallets open (despite being grumpy), businesses continued to invest in technology and beyond, inflation remained on a decent trajectory, and labour markets stayed stuck in a no hire, no fire, holding pattern appropriate to North America’s immigration backdrop. Markets love it that central banks can keep financial conditions loose, thanks to steady inflation (around 2.5%) and lacklustre labour markets. Add to this mix strong nominal economic growth – that’s real economic growth plus inflation – and signs of productivity gains. It all leads to expectations for robust earnings growth, which were validated by the latest round of reporting on company earnings.
Gold re-Buff-ed
Lost in all the discussion of gold's parabolic movement and correction is the more important question facing investors: What should we do about it? Gold has some special attributes that make it particularly difficult for investors to navigate. The yellow metal has the allure of safety and the perception that it is a good hedge against inflation, geopolitical uncertainty, and the whims of governments that control fiat currency. For Canadians, these issues are ever more acute, given that gold plays an outsized role in our economy and stock market. Factoid: the dollar value of Canada’s gold exports now equals the dollar value of our oil exports – not because oil exports have collapsed but because gold has skyrocketed in dollar terms.
Is gold a haven against unrest, inflation, and currency debasement? Like many things in investing, the answer is maybe. It depends on your time horizon and patience. Gold has demonstrated that it is a decent store of value – if you are prepared to hold it over the long term. What does this mean? The gold will be there for you (it doesn’t rot, wither or decay), people will still want to buy it from you, and will pay a price that allows you to buy other things that the gold could have bought you years and years ago. (It is still relevant and – adjusted for inflation – it still has value.)
The problem with gold is that the path it takes from one day to the next, or one year to the next, can be marked by bouts of extreme volatility and prolonged periods in the doldrums; both test an investor's patience.
Historically, the price of gold follows a very consistent pattern. The price runs up sharply, and that can last for several years. In the last 45 years, we’ve seen two major decade-long surges, 1970 to 1980 and 2000 to 2011. These accelerations are difficult to time but give gold its long-term value. In between the fevered run-ups lies a desert of despair. Gold lost 60% of its value over a turbulent, but generally downward, 20-year period (1980-2000). More recently, from 2011 to 2018, it fell roughly 30%, again in a generally downward trend. During these extended periods, few (aside from the life-long goldbugs) are chattering about gold as a store of value, owning gold mining companies, its safe-haven status, or the protection it provides against inflation. The conversations are largely morose: "Why do I own this?” and " Isn’t it costing me fees to own or store it?” These dark days set the stage for spectacular rallies. The current run-up is roughly two years old, which isn’t to suggest it has eight years left. There have been many mini-run-ups of similar length and magnitude that ended abruptly, adding to the difficulty of market timing gold investments.
Gold isn’t cash
What do we make of all this? It doesn’t mean gold exposure (bullion or gold mining companies) isn’t useful to investors. It means we need to understand how the asset behaves (as with all assets) and use it appropriately. For us, gold is not a short-term store of value; an asset that can fall 10% in a day (like it did on January 30, 2026) isn’t a place for cash you need in February or anytime in 2026. Cash or money market instruments are the solution in that situation.
Gold isn’t bonds
Some investors think gold is a better alternative to government bonds, another safe haven. Comparing gold to long-term bonds, there is an argument to be made for it (hence why we think some exposure to gold is useful), but the time horizon is key. If you need or want your money back in one, two or five years then a government bond of similar maturity is pretty close to a guarantee. Gold’s price volatility – day to day, month to month, and even year to year – is more stress than short-term investors should shoulder.
Gold is a risk asset and part of diversification
To sum up, investing in gold can be “safe” under particular circumstances. In our view, an asset is risky if it has a high volatility profile and lengthy time horizon requirement; gold has both. The yellow metal should be a part of the risk assets portion of a portfolio (like equities) and always in the context of proper diversification. It comes down to personal choice how much exposure to bullion or gold mining companies is right for you. Recommendations for adding this asset to your portfolio often fall in the 5% to 10% range. Canadians need to be especially aware of their gold exposure because the price run-up over the last few years has increased the percentage weight of gold mining companies in the S&P/TSX Index to around 15%.
Our strategy – Balanced with an equity bias, more optimistic
In our broadest representative portfolios, we remain modestly overweight in Canadian and U.S. equities. We are neutral weight to international developed and emerging market equities and underweight in fixed income. In addition to the healthy correction for gold, the last several months have seen the largest technology and AI-related stocks face volatility. Throughout these tests, the rest of the equity market not only staved off contagion but also picked up the slack. These developments leave us more constructive on stocks and increase our risk appetite.
The last word: Keep politics out of your portfolio
January’s “same as it ever was” theme extended to the litany of chaotic headlines shouting about politics and geopolitics. Thankfully, similar to 2025, capital markets continued to show resilience (defiance in some cases, perhaps). Stocks stumbled and bond yields rose in response to unfolding events and an alarming upending of norms. This continued to provide the essential feedback that policymakers need, reminding world leaders that choices and actions have ramifications for the real economy. Once everything settled back down, capital markets returned to focusing on the positives underpinning the world economy, leaving us to hum one last “same as it ever was.” As ever, it’s vital to keep political emotions out of our investment portfolio decisions.
