The Canadian dollar cannot seem to catch a break, with the loonie flying lower for winter. Though the 30-day tariff pause has given the loonie a slight jolt, making up for the prior few weeks of steep losses (can you believe the loonie ran the risk of sinking well below US$0.68?), I think Canadian investors should be ready for the impact on the loonie should this month-long pause in tariffs solve nothing. Indeed, Trump tariff threats could have serious implications for Canada’s economy, which wasn’t in the best state to begin with.
In any case, should 25% tariffs actually end up happening, I wouldn’t be too surprised if the loonie were to plunge to US$0.65 or maybe even lower. Of course, it’s impossible to predict the loonie’s next move. For that, you’d need to know if Trump is serious about imposing tariffs on Canadian goods. In any case, I think there are several ways to prepare for a weaker loonie. In this piece, we’ll go through two more ways for investors to hang in there should the loonie be in for even more of a tumble, either due to tariffs or Bank of Canada rate cuts.
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There’s a silver lining for silver
In a prior piece, I highlighted how precious metals, most notably gold, would be great ways to put one’s guard up as the Canadian dollar stood to sink to the mid-US$60 levels. Indeed, gold has been on an unstoppable bull run of late, recently blasting off to new highs. Over the coming weeks and months, US$3,000 per ounce is a realistic possibility for gold.
Though I like gold as a sound long-term hedge against inflation and macro turmoil, I must say that investors should not ignore silver at current levels. Silver prices haven’t been as hot as gold in the past year, but they’ve been picking up serious traction in recent months. And with new highs of its own in sight, perhaps it’s time to check out some of the silver closed-ended funds (CEFs) that are out there. Personally, I think silver could have a bit more room to run versus gold, as the metal looks to play a bit of catch-up in the latter half of the decade.
Sprott Physical Silver Trust (TSX: PSLV) is my preferred pick for investors seeking to bet on physical silver. The CEF currently goes for a close to 3% discount to net asset value (NAV), and while the discount could increase to 4% or even 5%, I still think PSLV is a compelling longer-term option for investors serious about betting on silver.
The 0.59% management expense ratio makes the CEF pricier than the gold one. However, given there aren’t nearly as many pure silver options on the market, I’d say the PSLV really is a decent bet if you’re keen on diversifying your precious metal exposure.
Going for the U.S. stock ETFs
Betting on a TSX-traded total stock market index ETF, like Vanguard U.S. Total Market Index ETF (TSX: VUN), which provides exposure to U.S. stocks (large, mid-sized, and small), could be worth the bet. You’ll not only benefit from gains to be had from the broadening out of the U.S. stock market’s bull run, but you’ll also get an added bump should the loonie continue to sink from current levels.
Do note, though, that if the loonie strengthens versus the greenback, VUN could face dampened upside. That’s the trade-off when you bet on unhedged ETFs! Either way, if you’re dreading a falling loonie, VUN should be a nice addition.
