As the possibility of a trade war looms, Canadian investors are adjusting their portfolios in search of stability, turning to assets like gold and uranium stocks. The shift comes in response to heightened economic uncertainty and the potential impact of new tariffs on the Canadian economy.

U.S. President Donald Trump has proposed imposing a 25% tariff on most Canadian imports, set to take effect in March. Steel and aluminum face even steeper levies under new trade orders signed by the president. Given that Canada exports 75% of its goods to the U.S., these tariffs represent a significant risk to the nation’s economy.

Canada’s stock market, the S&P/TSX Composite Index, is heavily weighted toward financial, telecom, real estate, energy, and materials stocks, which collectively make up about two-thirds of the index. While these sectors may avoid direct tariff impacts, analysts warn that they could still suffer from an economic downturn if trade relations deteriorate further.

Trade-sensitive sectors have already experienced losses since Trump’s election on November 5. Shares of Canadian planemaker Bombardier Inc. have declined by approximately 19%, while stocks in auto parts, steel, lumber, and dairy products have also faced downward pressure.

Gold Gains Momentum with Market Uncertainty

Gold is quickly becoming a preferred investment in response to trade and geopolitical tensions. The metal is traditionally seen as a safe-haven asset during periods of economic uncertainty, and demand has surged in recent months.

The Toronto stock market’s materials sector, which includes metal mining stocks, has climbed nearly 15% this year. Among the biggest gainers, shares of Agnico Eagle Mines Ltd., a major gold producer, have risen by 26.5%. The increase coincides with gold prices reaching record highs, as investors seek protection against market volatility.

The rise in gold stocks, along with strong performance in the technology sector, has helped keep the TSX index near its record high from January, despite concerns about tariffs and potential trade restrictions.

Uranium Stocks Benefit from Energy Security Concerns

Another area drawing investor interest is uranium. The U.S. remains reliant on Canadian uranium for its nuclear energy industry, as there are few viable substitutes. Amid growing concerns about energy security and discussions about energy independence, nuclear power has re-emerged as a potential long-term solution.

Shares of Cameco Corp., one of the world’s largest uranium producers and a TSX-listed company, have seen substantial gains. Although Cameco’s stock pulled back from its all-time high in December, it has still advanced approximately 46% since early September.

Some analysts suggest that uranium stocks could continue to attract investment as the U.S. government focuses on securing domestic energy resources while reducing reliance on foreign oil and gas.

Canadian Dollar Declines, Offering Currency Advantage for Some Sectors

The Canadian dollar has faced pressure amid trade uncertainty, recently hitting a 22-year low of 1.4793 per U.S. dollar, or 67.60 U.S. cents. The currency’s decline has been driven in part by the Bank of Canada’s ongoing interest-rate cuts, aimed at supporting the economy.

Despite the weaker loonie, some sectors stand to benefit. Many oil, gas, and materials companies generate revenue in U.S. dollars while incurring costs in Canadian dollars, creating a natural currency advantage. As a result, investors are looking to increase exposure to these industries, which could help offset some of the broader economic risks.

While the prospect of a trade war has created increased market volatility, most analysts believe that these fluctuations may create investment opportunities. Government spending on affected industries and potential economic support measures could also stabilize markets over the coming months on an as-needed basis.

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a licensed professional for investment advice. The author is not an insider or shareholder of any of the companies mentioned above.

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