Canada’s about to become one of the world’s largest exporters of shiny rocks. BMO Capital Markets recently told investors that gold is just a hair shy of being Canada’s second-largest export. Underlying output has quietly scaled over the past 25-years, leaving the industry well-positioned for the recent price surge. Though it’s worth noting that the asset’s price surge in itself is an ominous warning for the general global economy.
Canada Is About To See Gold Become Its Second-Largest Export
Gold is a boring investment and that’s exactly what most people should want it to be. It’s traditionally used as a tool for portfolio diversification and general risk mitigation. Generally, investors purchase it as protection from currency debasement (inflation), an overextended stock market that may turn volatile, geopolitical risk, or a coming recession.
Investors (and global central banks) must fear all of those issues are happening, because demand has abruptly surged. The recent gold rush has sent prices surging just a little higher than inflation—over 50% higher in the past 12-months. Canada’s central bank, which holds zero ounces of gold in reserve, may not be well positioned for the surge—but the Canadian economy is.
“Just to show how the extreme rally in gold (and silver) has transformed things, Canadian exports of these precious metals have matched exports of cars & light trucks in the past 12 months,” explains BMO Chief economist Douglas Porter, noting that both segments came in at roughly $58 billion. “That means that after crude oil, gold is thus about to become Canada’s second-biggest export—assuming the recent gold price correction doesn’t turn into a free fall.”
Canada Has Seen Exports Quietly Expand For The Past 25 Years
Canada’s economy has seen gold exports rise sharply over the past quarter century, according to the bank. Porter notes that gold was a relatively small share of exports around 2000, with gold being just a fraction of key industries at the time: exports of cars and trucks were about 20x greater than gold, and forestry products ~15x. Since then, its share has dramatically increased.
Source: BMO Capital Markets; Statistics Canada.
“Gold long ago blasted past worthies such as potash and electricity. But it has now gone well above the much bigger export components of natural gas, all farm & fish products, and even all forestry products,” Porter explains.
This trend isn’t just due to price growth, with the bank estimating that underlying output climbed ~70% from 2020. Output scaling shouldn’t surprise with prices rising 1,306% over the same period—clearly there was a bit of motivation.
Gold is nowhere near claiming the title of largest export, which is crude—if we exclude money laundering. At more than double the volume, it’s unlikely to see crude be replaced anytime soon. But gold is well-positioned to capture a big lead over automotive exports, and cement its spot as the second-largest export. At least over the medium-term.
Gold Exports Better Positioned Than Vehicles For Canadian Exports
There are a few obvious factors that even the most amateur investor may have spotted. Vehicle exports aren’t looking great in the near-term with the American-led trade war having no end in sight. Earlier this week, Morgan Stanley also shared a research note arguing gold’s recent pullback is temporary, and strong demand will persist into 2026.
More importantly, gold is considered a countercyclical investment, which performs well when the economy is in the contraction phase of the business cycle. Cars are durable goods—like homes, appliances, and furniture—expensive products that are purchased for long-term use, where consumption peaks at the top of the business cycle. With Millennials approaching their demographic peak and credit-driven consumption just printing record growth, it appears investors are calling the top for the business cycle. Out with the old, in with the gold.
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