Silver price soars, highest since 2008

Key Concepts

• Precious Metals: Gold and Silver, viewed as safe haven assets and benefiting from supply/demand imbalances.
• Energy Sector: Focus on Canadian energy infrastructure companies with strong dividend yields and low debt.
• Diversification: Utilizing liquid alternatives (merger arbitrage, credit strategies) and a small allocation to cryptocurrency to reduce portfolio risk.
• Geopolitical Risk: Consideration of political factors like US-Canada trade relations and events like the Venezuela situation.
• AI & Technology Demand: The increasing demand for silver driven by the growth of data centers and AI technologies.
• Supply Chain Resilience: Focus on building refining capacity within North America for silver to control the flow of supply.

Investment Strategy & Market Outlook – Christopher Carlo (Canaccord Genuity)

I. Precious Metals – Gold & Silver

Christopher Carlo, Senior Portfolio Manager at Canaccord Genuity, outlines a bullish, yet cautious, outlook on precious metals. The firm has been heavily invested in the sector for over 18 months, capitalizing on gold’s recent surge past $5,000 an ounce and silver’s significant gains. However, Carlo indicates a strategy of “tightening up” – looking for a pullback in gold prices before adding to positions. He anticipates potential for gold to reach $5,000 and silver to exceed $110, but believes recent gains could be relinquished quickly, presenting a buying opportunity.

A key driver for silver is a significant supply deficit. Globally, there have been deficits of approximately 5,000 tons of silver annually for the past three to four years. This is compounded by increasing demand, particularly from the technology sector. Carlo specifically cites Microsoft’s construction of data centers in Texas, each requiring 5,000 tons of silver, with plans for 15 such centers. He emphasizes silver’s critical role not only in emerging technologies like ChatGPT but also in defence and national sovereignty.

Regarding potential pullbacks, Carlo doesn’t specify a precise price target for gold, but focuses on adding to existing positions in mining companies like Agnico Eagle and Alamos Gold, which they have been strategically trimming profits from over the past 6-8 months. For silver, he is already adding to positions, highlighting undervalued assets and the need for increased smelting and refining capacity within North America. He notes the challenges with midstream refining, particularly in light of political uncertainties.

II. Energy Sector – Canadian Focus

Carlo expresses a positive outlook on the energy sector, identifying it as one of the few areas offering value heading into 2026. Pembina Pipeline is a recent addition to their portfolio, attracted by its 6% dividend yield, strong free cash flow, and low debt. This investment was partially funded by taking profits from TC Energy and Enbridge, motivated by a desire to diversify geopolitical risk, particularly in light of events in Venezuela.

Altgas is another company of interest, described as a utility stock with “energy beta.” The Canadian Dividend Portfolio saw a 26% increase last year, making it challenging to find value, but Altgas presented an opportunity, especially given the TSX’s 4% gain in January.

III. Diversification & Alternative Investments

Carlo advocates for diversification beyond traditional asset classes. He expresses skepticism towards the bond market, noting the ten-year yield creeping above 4.5% and approaching 5%. He points out a diminishing correlation between bonds and equities over the past two years, reducing their effectiveness as a portfolio diversifier.

Instead, the firm utilizes “liquid alternatives” such as merger arbitrage and idiosyncratic credit strategies, focusing on specific credit events rather than long-duration fixed income. He views these strategies, alongside precious metals, as crucial diversifiers. A small allocation to Bitcoin is also included across client portfolios.

IV. Geopolitical Considerations & Trade Policy

Addressing the potential impact of Donald Trump’s proposed 100% tariff on Canadian imports and the renegotiation of the USMCA agreement, Carlo downplays the immediate threat. He notes that Canada and Mexico have actually benefited from the trade war, experiencing a net 5% tariff advantage over the past 12 months, while China has been negatively impacted.

He describes a strategy of opportunistic buying during periods of trade-related weakness, maintaining a “short list” of names to add to if such opportunities arise. He also highlights a broader focus on strengthening energy trade within Canada, reducing reliance on exporting heavy crude to the United States.

V. Technical Details & Specific Examples

• Silver Demand: Microsoft’s data center plans require 5,000 tons of silver per center, with 15 centers planned.
• Supply Deficit: A consistent 5,000-ton silver deficit globally for the past 3-4 years.
• Pembina Pipeline: 6% dividend yield, supported by free cash flow and a low debt profile.
• Portfolio Performance: Canadian Dividend Portfolio up 26% in the past year.
• TSX Performance: TSX up almost 4% in January.
• Bond Yield: Ten-year yield approaching 5%.

Notable Quote:

“We need it [silver] for everything for the data centres which are becoming not just creating cool images on ChatGPT, but also a critical component of technology, defence and sovereignty.” – Christopher Carlo

Conclusion:

Carlo presents a nuanced investment strategy centered on capitalizing on the strength of precious metals and the Canadian energy sector, while actively diversifying through liquid alternatives and carefully monitoring geopolitical risks. The firm’s approach is characterized by a willingness to take profits, a focus on value, and a proactive stance towards identifying and exploiting market opportunities. The emphasis on supply chain resilience, particularly regarding silver refining capacity in North America, underscores a long-term perspective on resource security and strategic independence.