Introduction
The global investment landscape is undergoing a period of profound transformation, driven by escalating geopolitical tensions, shifting economic policies, and a rotation of capital into tangible assets. A key player in this evolving environment is U.S. President Donald Trump, whose reemergence on the political stage has reignited discussions on economic nationalism, energy security, and the establishment of strategic alliances within the Western Hemisphere.
Trump’s economic agenda also extends to repatriating U.S. gold reserves, a move that has prompted speculation about a possible return to a commodity-backed financial system. While this is still a hypothetical proposition, the narrative alone is prompting institutional investors to accumulate physical gold, thereby tightening supply and potentially altering financial markets.
Coupled with these developments are aggressive fiscal measures in Europe, most notably the EU’s €800 billion “eco-arms” package, a stimulus initiative aimed at bolstering both the energy sector and military capabilities. The implications of these shifts are far-reaching, with some analysts predicting the resurgence of a European debt crisis, while others point to a potential disruption of global trade dynamics, particularly as the U.S. begins to openly criticize Japan’s currency management.
Against this backdrop, investors are reevaluating their capital allocation strategies, particularly as they shift away from speculative high-growth assets such as technology and cryptocurrencies, toward hard commodities. This pivot toward tangible assets reflects a growing concern about the sustainability of monetary policies, inflation risks, and the broader global economic stability.
In Canada, this trend presents an opportunity for the nation to leverage its vast natural resources and robust commodity sector to meet rising global demand. However, Canada must act quickly to adjust its regulatory environment and remain competitive in the face of these sweeping geopolitical and economic shifts.
Section 1: Geopolitical Shifts & Their Impact On Canada
The Trump Doctrine: Economic Nationalism & Hard Asset Accumulation
Donald Trump’s economic agenda is increasingly centered around the concept of economic nationalism. Under this framework, the U.S. is likely to increase its focus on securing domestic supply chains, particularly for critical raw materials. This emphasis on self-sufficiency and economic security could provide a significant boost to resource-rich nations such as Canada, Mexico, and certain South American countries.
Canada stands to benefit directly from these developments. The U.S. is keen to reduce its dependence on foreign suppliers for energy and raw materials, and Canada is well-positioned to meet this demand. In particular, Canada’s oil sands, mining sector, and other natural resources are of increasing strategic importance as the U.S. seeks to secure its energy and raw material supplies. However, Canada’s ability to fully capitalize on this opportunity will depend on its regulatory environment. Without swift reforms to streamline permitting processes and accelerate the development of new resource extraction projects, Canada risks losing its competitive edge to other countries, including those in Latin America.
Furthermore, Trump’s focus on repatriating U.S. gold reserves has added a new layer of complexity to the global financial system. The narrative surrounding the potential return to a gold-backed currency system is fueling institutional demand for physical gold. While the idea of a return to the gold standard is unlikely in the near term, the mere suggestion is exerting upward pressure on the price of gold. For Canada, this presents an opportunity to tap into the growing demand for precious metals, provided it can strengthen its mining sector and ensure that its regulatory framework is conducive to rapid expansion.
European Debt Crisis Redux?
The European Union’s fiscal policies, particularly its €800 billion eco-defense package, are raising concerns about the sustainability of its debt levels. With many southern European nations already struggling under heavy debt burdens, the EU’s decision to undertake additional fiscal spending could have destabilizing effects. If productivity gains do not keep pace with the increase in debt, bond yields across the region could rise, triggering a renewed sovereign debt crisis.
Such a crisis would likely have far-reaching effects, including capital flight from European markets into safer assets. Historically, the U.S. dollar, gold, and Canadian hard commodities have served as the primary beneficiaries of this kind of capital flight. If the EU’s debt problems continue to escalate, the resulting volatility could create new opportunities for Canadian assets, particularly in the resource sector. The demand for safe-haven assets could push capital flows into North America, particularly toward Canadian resource assets.
A destabilized European bond market could also impact the relative strength of the euro and the U.S. dollar. A stronger U.S. dollar could make Canadian exports less competitive in international markets. However, over the long term, it would likely reinforce the investment case for Canadian resource assets, as demand for tangible assets such as oil, gas, and minerals increase.
Japan, Currency Manipulation, & The Global Carry Trade
The U.S. has recently increased its scrutiny of Japan’s currency policies, particularly its ongoing efforts to devalue the yen in order to stimulate its export-driven economy. The U.S. has long been critical of Japan’s currency manipulation, and growing pressure could lead to a significant disruption in the global carry trade. For years, the low-yielding yen has been a key funding currency in the global carry trade, where investors borrow in yen and deploy capital into higher-yielding assets worldwide.
A sudden appreciation of the yen could lead to an unwinding of leveraged positions across global markets. As investors are forced to liquidate positions, risk appetite could diminish, potentially triggering a shift toward safer assets. This would likely benefit markets that are closely tied to physical commodities, including gold, oil, and industrial metals. Canada, with its vast natural resource base, stands to benefit from such a shift, as capital flows into resource-rich markets and out of overvalued speculative assets.
Section 2: U.S.-Ukraine Dynamics, European Military Expansion, & Energy Markets
The U.S. & European Military Response To The Ukraine Conflict
The ongoing conflict in Ukraine has catalyzed significant shifts in both U.S. and European defense spending. NATO members have dramatically increased their defense budgets, with the EU announcing plans to channel €800 billion into eco-defense initiatives. This surge in military spending is expected to further strain global commodity markets, particularly in metals such as copper, nickel, and rare earth elements, which are crucial for weapons manufacturing and military technologies.
However, the combined effect of military expansion and broader fiscal stimulus may exacerbate inflationary pressures across Europe. In an already debt-laden continent, these measures could trigger renewed concerns about the sustainability of public finances, further straining European bond markets. Should bond yields spike and investor confidence in European debt wane, capital could flow into North America, particularly toward Canadian resource assets.
Additionally, a reduction in U.S. military commitments abroad could have broader geopolitical implications. A pullback from interventionist policies could increase regional instability, prompting a greater demand for safe-haven assets. In such a scenario, commodities and hard assets would likely become even more attractive to investors, particularly those seeking to hedge against geopolitical uncertainty.
Section 3: Capital Rotation & Investment Strategy In Hard Assets
Tiered Investment Strategy For Hard Assets
With global capital flowing into hard assets, investors need to adopt a tiered strategy to maximize their exposure to this growing trend.
- Tier 1: Direct Physical Commodities (Institutional Focus): As institutional investors dominate the physical markets for gold, silver, and other precious metals, retail investors may find it increasingly difficult to access these assets. The tightness in the physical market is likely to push prices higher, benefiting those who can secure allocations in the physical markets early.
- Tier 2: Large and Mid-Cap Commodity Producers: As physical supply tightens, attention will shift toward large and mid-cap commodity producers. These companies stand to benefit most from rising commodity prices, as they have the capacity to scale production and meet growing demand. Mid-cap companies may offer additional upside potential as they expand their operations to meet the increasing demand for raw materials.
- Tier 3: Underappreciated Exploration Companies: The final tier in the investment strategy is focused on exploration companies. While these companies are high risk, they also offer the greatest potential upside. As the market absorbs value in established producers, attention will shift to exploration companies, which may experience significant appreciation as new discoveries are made and the value of their reserves is recognized by the market.
Impact Of Risk Profile Changes On South American Companies
As geopolitical tensions intensify and the North-South Americas economic corridor strengthens, South American companies are likely to see their risk profiles improve. Historically, South America has faced higher perceived risks due to political instability, currency volatility, and weaker institutional frameworks. However, as the U.S. prioritizes regional economic security and resources, the investment climate in South America is expected to stabilize, potentially driving capital inflows into the region.
This shift in risk profiles will likely lead to increased investor confidence and could result in a recalibration of valuations for South American companies. Companies in resource extraction, energy, and infrastructure will benefit from heightened attention, as they stand to gain from increased demand for commodities needed to power the next wave of infrastructure development. As capital flows into these markets, valuations for South American companies may rise, particularly for those positioned to benefit from the growing demand for natural resources.
Conclusion
The world is entering a period of profound economic realignment, driven by geopolitical shifts, aggressive fiscal policies, and a rotation of capital into hard assets. Canada is uniquely positioned to capitalize on this shift, but it must act swiftly to adapt its regulatory environment and infrastructure to meet growing demand for natural resources. Meanwhile, South American companies will experience a decrease in their risk profiles, creating new opportunities for investment in the region. Investors, too, must position themselves strategically, focusing on hard assets that offer both safety and long-term growth potential. As geopolitical tensions rise and global economic policies evolve, those who act early will be best positioned to capture the benefits of the changing global economy.
About Moneta
Moneta is a boutique investment banking firm that specializes in advising growth stage companies through transformational changes including major transactions such as mergers and acquisitions, private placements, public offerings, obtaining debt, structure optimization, and other capital markets and divestiture / liquidity events. Additionally, and on a selective basis, we support pre-cash-flow companies to fulfill their project finance needs.
We are proud to be a female-founded and led Canadian firm. Our head office is located in Vancouver, and we have presence in Calgary, Edmonton, and Toronto, as well as representation in Europe and the Middle East. Our partners bring decades of experience across a wide variety of sectors which enables us to deliver exceptional results for our clients in realizing their capital markets and strategic goals. Our partners are supported by a team of some of Canada’s most qualified associates, analysts, and admin personnel.