TSX well positioned as energy rises, gold resets

Text transcript

Welcome to Advisor to Go, brought to you by CIBC Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject-matter experts themselves. 

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Tudor Padure, portfolio manager, CIBC Global Asset Management 

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Geopolitical tensions are front and centre. Markets experienced increased volatility in March, as equities began to price in the risk of a prolonged conflict in Iran, raising concerns over regional stability and global commodity flows. 

Energy has continued to outperform since the war started, with WTI crude climbing 42% in March amid supply risks through the Strait of Hormuz, a critical route for roughly 20% of global oil shipments. The Western Canadian Select — or WCS — discount to WTI narrowed, briefly even reaching single digits for the first time in nearly a year. This is a very positive development for Canadian producers, as we believe a geopolitical premium is likely to persist even after the conflict subsides. 

Canadian E&Ps gained 11% in March, bringing their year-to-date gains to 25%, partly due to some pre-positioning ahead of the event. To address the higher energy prices, the IEA coordinated a strategic petroleum reserve release of roughly 400 million barrels — that’s 3.3 million barrels per day — with the U.S. contributing 172 million barrels, or 58% of its reserve. 

Additionally, the U.S. has temporarily eased sanctions on Russian oil, allowing a one-month waiver for purchases of previously unsold cargoes, with the aim of mitigating the economic impact of the conflict. 

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Persistently elevated oil prices raises the risk of stagflation — that’s low growth and high inflation — a dynamic last seen during the 1970s oil shocks, the OPEC oil embargo and the Iranian Revolution. While these risks are rising, the TSX actually remains well positioned to outperform the U.S., given its higher weighting in materials and energy, both of which outperformed during previous periods of oil-driven inflation. That’s 1972 to 1974, and the late ’70s, 1977 to 1980. 

With that said, one key difference between today and the 1970s that may help mitigate the impact is the significantly lower oil intensity of the economy. Industry innovation, improving efficiency, and the adoption of alternative energy sources have helped make the economy, including consumers, less vulnerable to oil price shocks. As a result, we see the percentage of disposable income that U.S. consumers spend on gasoline has declined dramatically, falling from an average of 12% in the 1970s, to closer to 4% in 2025. 

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Next, to touch on precious metals, gold, in particular, declined 9% to 10% since the onset of the Iran conflict, which may seem counter intuitive given gold’s reputation as a safe haven. However, this conflict was well telegraphed, and the price of bullion had risen in anticipation of the event. Year-to-date, gold is still up 11%, supported by central bank buying, U.S. de-dollarization, and fiscal and inflationary tailwinds. 

Gold miners underperformed, falling as much as 28% since March 1, but have since recovered and are down about 12% since the conflict started. We took advantage of the weakness to add to materials, including gold, and we believe this sets up an attractive entry point for the equities. 

The miners’ underperformance can be attributed to markets’ recalibration of expected rate cuts in 2026, which has put upward pressure on the U.S. dollar, further amplified by higher energy prices, which I will get into later. 

We can also look at history as a decent analog for the current reaction for gold. For instance, in the prior two periods of war-driven oil spikes in the 1970s that I mentioned, gold actually followed a very similar path. During the OPEC oil embargo of 1973, gold sold off 29% in the second half of 1973. But by December of ’74, gold had risen 117%. During the Iranian Revolution of 1978 and 1979, gold fell 22% during that fall of 1978, and subsequently rose over 300% by January 1980. 

We also see similar paths during initial market shocks, such as the dot-com crash, the Russia invasion of Ukraine, as well as the global financial crisis. And the main driver here really is the initial flight to safety in the U.S. dollar, which is inversely correlated with gold as a stronger currency increases an investor’s cost of acquiring gold. However, as the conflict or shock subsides, it’s been typically met with increased fiscal stimulus through debt — and that’s whether to finance the aforementioned conflicts, or support the economy during a shock — which then puts downward pressure on the dollar. And we believe a similar path could be playing out in today’s markets. 

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Another impact to miners is the higher oil prices, which is an input cost for miners across all metals. On average, every 10% increase in oil prices raises gold miners’ costs by roughly 1% to 2%, although this does depend on both geography and the mine. Now, if we simplistically assume the current 77% year-to-date oil price increase as of March 31 holds, this could mean roughly 16% of cost inflation at the high end. 

To better put this in perspective, on average, the producers that we own — and this ranges from large-cap producers such as Agnico Eagle Mines, Kinross and Barrick, as well as smaller cap, such as G Mining Ventures — they all provided 2026 guidance on all-in-sustaining cost, or AISC, of roughly $1,600 at the midpoint, typically using $70 WTI. AISC, for reference, is the total cost a mining company spends to produce one ounce of gold. 

The increase in mining costs under this scenario — that 77% year-to-date increase — would imply an AISC closer to $1,800 from the aforementioned $1,600. But it’s important to note that this still provides considerably robust operating leverage, given the current price of gold is roughly $4,800, and the average year-to-date price has been roughly $4,900. So [there’s] still $3,000 of spread there. 

This compares favourably to the average gold price of just under $3,500 in 2025. So as a result, we remain very constructive on gold equities and view the recent pullback as a buying opportunity, supported by its strong balance sheets and ongoing shareholder returns through both dividends and buybacks. 

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Lastly, to discuss private credit, we are seeing opportunities today. 

March saw further negative headlines as Blackstone, BlackRock, Cliffwater, Apollo and Ares all limited redemptions. They join other asset managers who have capped withdrawals amid market concerns over software sector exposures in the context of AI risks, and elevated valuations from 2020 to 2022. As a result, the VanEck Alternative Asset Manager ETF is down 16% year to date, with more software-focused names, like TPG and Blue Owl, down 30% plus. 

While it’s too early to fully determine the impacts of these investments in the context of a full credit cycle, we do believe Brookfield — both the corporation and the asset manager, so that’s BN and BAM — are better insulated from these headwinds given their focus on real or hard assets, such as infrastructure, real estate and renewables, while also having minimal software exposure at roughly 1% to 2% of total assets. 

Now, BAM has outperformed the aforementioned peer group, down only 9% to 10% of the year. However, we would argue that on a fundamental basis, the company is better positioned to capture AI-related capital deployment, and expect this focus to lead to a record fundraising year in 2026. 

An example of this for Brookfield Asset Management would have been their recent launch of their inaugural AI fund strategy — Brookfield Artificial Intelligence Infrastructure Fund, or BAIIF — with a formal $10-billion target fund size. Importantly, that launch came with initial commitments from both Nvidia and KIA of $3 billion, and within BAM’s ecosystem of another $2 billion. We view this as a key differentiator for BAM and the Brookfield ecosystem, as they’re working to be an established leader across data AI infrastructure spending.

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