With the oil glut now removed, we have seen oil prices continue to move higher in 2018. While we don’t expect to see WTI prices at US$100 per barrel, we do expect the price to stabilize in the current US$65-75 range. On that basis we still see extremely good value in the energy sector in both the U.S. and Canada and are overweight the sector in the portfolio.

The surprise in the quarter was the performance of the precious metal stocks. While the gold commodity sold off -5.4%, the stocks rallied. Despite the commodity’s poor performance, the GDXJ (a proxy for small cap gold stocks) was up almost +2%. When stocks start outperforming their underlying commodity, it is usually an indication that the equities are “digging in” to set up for a positive move (into the seasonally strong part of the year). The chart below show’s the Canadian Gold ETF breaking out of a two-year downward trend despite gold price weakness.

The US$ is also starting to show a bearish divergence. The combination of the technical action of the gold stocks and the potential weakening US dollar has us more confident that the gold sector will have a big run into the back half of 2018. We continue to favour midcap producers like Kirkland, Endeavour, Equinox, K92 and Torex.

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