As more investors buy equities, gold’s safe-haven status may fade further next year, says Benjamin Tal, deputy chief economist of CIBC World Markets.

Stock markets rallied throughout 2013, fuelling massive flows into equities. And since 2014 is expected to be better for the global economy, that means gold isn’t likely to shine soon, says Tal.

“Gold was nothing but a comfort food over the past few years and the fact that the global economy is starting to improve is the main reason gold isn’t doing so well now,” he says. “That will continue to be the case if you take a two- or three-year perspective.”

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His outlook for bonds isn’t much better. “The stock market will outperform the bond market by a wide margin in 2014,” says Tal. “At this stage of the cycle, with interest rates starting to rise, the long-term rally in the bond market is over.”

Dividend-paying stocks may also lose, adds Tal.

“Interest rates will eventually start rising and divided-paying stocks will be less attractive than high-beta stocks,” he finds. “I won’t reduce my position in dividend-paying stocks but I won’t add to it. I will add to my position in cyclical stocks.”

Outlook for TSX

Over the past year, the TSX grew at about 2%, significantly less than the roughly 20% advance of the U.S. stock market during the same period. Tal predicts the gap will close in 2014.

“Historically speaking, every year that the TSX lagged the S&P 500 by a significant margin, the following year the TSX, on average, advanced by 16%,” he says. “The U.S. economy will surprise on the upside, especially in the second half of 2014. We will probably see more demand for [Canadian] exports such as energy and commodities.”

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Tal adds he’s bullish on cyclical sectors—“the high-beta segment of the market—as those stocks are more sensitive to the global cycle. Energy and utilities will do fine and commodities in general will do okay given that we’ve seen some improvement in commodity prices.”

As for financials, probable rising long-term interest rates in the second half of 2014 offer cause for optimism.

“The long-term interest rates will be rising while the short-term rates will more or less stay where they are, which is always a positive for Canadian banks,” says Tal. “Add to it the fact that credit, although weak, is not getting weaker. It means we won’t see the negatives we’ve seen relative to credit impacting the Canadian banks as they have over the past two years.” He adds the steepening yield curve will improve profitability in the margins.

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