Gold

and Canada’s

big banks

are behind the

S&P/TSX Composite index

‘s big push above 30,000, with earnings season an upcoming hurdle the market will have to climb.

Canada’s leading index retook the 30,000 level this week after falling back during last Friday’s market rout over a re-emerging tariff fight between the United States and China.

Markets appear to have shaken that off for the time being as the

price of gold

continues to set records to the benefit of the commodities-heavy index.

“I think this is the market climbing the wall of worry, and we’re also seeing just a really nice rotation to the commodities, which Canada’s overweight. And the gold move has been tremendous, and I think that’s been the big driver for this,” Greg Taylor, chief investment officer at PenderFund Capital Management Ltd., said.

The price of gold has risen nearly 60 per cent year to date and TSX gold miners have benefited, with precious metal companies accounting for six of the top 10 gainers so far this year.

“The real star has been the gold miners, which are flying,” Craig Basinger, chief market strategist at Purpose Investments Inc., said in a note.

Gold contributed $6.4 billion in earnings for the TSX in 2023 and Basinger estimates that the next four quarters will add $23.5 billion.

“Gold is the TSX’s version of an AI booster,” Basinger said. Artificial intelligence-related companies have been the main drivers of the U.S. bull market.

Taylor at Pender also noted Canada’s big banks as partly responsible for boosting the TSX.

“Banks are really interesting because they’re not showing a ton of growth, but I think they were probably a little oversold and forgotten, and I think they’re (on) such a good run,” Taylor said. “And I think that’s something to really pay attention to.”

Taylor also said part of the TSX’s latest run-up could be attributed to investors on the sidelines being coaxed out of their cash holdings, unable to resist the fear of missing out on the bull run.

Worries about tariffs and a possible recession in Canada pushed investors to assume a defensive stance, which Taylor said he sees as partly unwinding at the moment.

“A lot of people, given the headlines, were sitting in cash and overallocated to cash versus equities, just waiting for a pullback,” he said. “And that pullback hasn’t come. And the longer that the market has gone without a pullback, I think (it) is dragging people off the sidelines, back into it.”

Basinger said Purpose has taken profit from their gold holdings but still owns bullion in Purpose’s multi-asset balance mandate with two per cent in its North American dividend mandate allocated to

Barrick Mining Corp.

Looking ahead to where the TSX will go from here, Taylor said he thinks the gold miners are “overbought” and said a pullback appears in order.

Another sector is key to where the TSX goes from here, he said. “It’s really going to be … watching how the banks do.”

That sector is facing some turbulence as concern grows regarding small U.S. banks and their exposure to private credit. Canadian banking CEOs have so far assured investors that there is nothing to worry about, but Taylor said if problems arise in the U.S., it will spill over into Canada, given our Big Five financial institutions.

Canada’s earnings season, which is just around the corner, bears watching, he said, adding that it could be “choppy,” especially given concerns regarding where the tariff file with the U.S. is headed.

“It is very rare to have all three (TSX, S&P 500 and International markets) up this much at the same time,” Basinger said. “It certainly has increased the desire to take some profits or turn a bit more defensive. It can keep running, but we are in rarefied territory.”

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• Email: gmvsuhanic@postmedia.com