Gold Surges on Looming Rate Cuts in Canada | Sept 2025 Updates

Watch the full Episode here ▶️ on YouTube

I’m Steve Saretsky, and on episode 204 of The Loonie Hour we dug into the data and the noise: Canada’s Q2 GDP miss, cooling population growth in BC and Ontario, the political backlash against foreign students and temporary workers, a housing market that’s losing a critical revenue stream, and an increasingly stressed sovereign bond market while gold keeps climbing. If you like blunt conversation, macro puzzles, and a little dark humour, here’s the thread we pulled on this week.

Canada’s Q2 GDP: The headline is ugly, but the internals matter

Q2 GDP came in at an annualized -1.6% — a headline that understandably stokes recession talk. But headlines conceal details. The drop was driven almost entirely by exports (Q2 was one of the worst export quarters) and weaker business investment. Imports didn’t fall enough to offset that hit.

• Q1 was +2.0% (annualized).
• Q2 was -1.6% (annualized), reversing Q1’s gain.
• Household consumption and residential investment held up better than expected — residential investment was up roughly 2.8%.

Two important takeaways: first, the exports shock may be partly transitory (tariff and trade disruptions) and could normalize in Q3. Second, a lot of people reflexively call a recession on the headline, but consumption resilience and housing investment complicate that narrative. Per-capita growth has been weak for years, so “technical recession” debates miss the lived reality for many households.

Jobs, payrolls and why central banks are on watch

Canada’s private-sector payrolls are negative on an annual basis — a pattern we’ve only seen during major downturns (2008–09 and 2020). That soft labour demand, paired with weak growth, pushes the Bank of Canada closer to the cutting camp.

• Private-sector payrolls: negative year-over-year.
• US job openings: ~7.1 million (down from a March 2022 peak of ~12 million).
• US nonfarm payrolls (monthly): the market’s favourite headline that can still move policy expectations — watch Friday’s print.

Markets are pricing rate-action expectations aggressively: futures markets reflect a high probability of cuts from many central banks, including the Bank of Canada. The choreography of cuts, inflation prints and payrolls over the next few weeks will be decisive for markets.

Population growth, foreign students and the fragile revenue model

January–June population growth has slowed dramatically in BC and Ontario — near record lows for the first half of the year. Nationally there’s still year-on-year growth (~510,000), but that masks sharp geographic shifts and interprovincial migration patterns (Alberta is absorbing much of the internal inflow).

Two threads intersect here:

• Universities and colleges leaned heavily on international students for revenue. With tighter rules and political backlash, that funding tap is being turned down fast — and institutions are feeling it. Layoffs and financial strain are increasingly public.
• Temporary foreign workers have been essential to many industries. Political pressure to curtail programs exposes the fragility of a growth model built on importing labour rather than strengthening domestic supply and wages.

“When the tide goes out you learn who’s been swimming naked.” — the universities, and many businesses built on imported labour, are now getting exposed.

Housing: one of the biggest revenue streams has been choked off

Real estate was a huge engine for development fees, pre-construction revenue and municipal taxes. That engine is sputtering.

• Toronto pre-construction new home sales (Jan–July): ~2,600 in 2025 vs ~26,000 in 2022 — a tenfold collapse.
• This collapse in new-home demand hits builders, municipalities and related industries hard — and there’s no quick fix.

Yes, rate policy and remote work and demographic shifts all play roles. But a lot of housing demand over the last decade was structurally boosted by unusually high immigration and near-zero rates — both of which are changing.

The bond market is telling a different story than short-term rate expectations

This week’s big theme: everyone expects short-term rates to fall, but long-term yields are rising. That divergence is uncommon and meaningful.

• Short end: markets price cuts (Fed funds, Bank of Canada OIS curves).
• Long end: 30-year and 10-year yields are moving higher in many countries — the global long-end is showing strain.
• Gold is soaring: around US$3,550/oz (and up roughly 35% YTD), signaling investor fear about real yields, liquidity and system risk.

Why this matters: a steepening where shorts fall but longs rise can reflect liquidity concerns, credit risk, or a buyer strike in long-duration sovereign paper. If buyers refuse to hold long-duration debt unless yields compensate more, governments and central banks face tough choices.

The sovereign-debt panic scenario and contagion risk

We’re watching long-term yields in the UK, France and across Europe spike. The danger is nonlinear: a small, local shock can cascade through bank balance sheets and regulatory frameworks (Basel risk weights, collateral rules), causing fast-moving market stress.

• Example: UK long yields and 30-year gilts hit multi-year highs; France’s long yields (OATs) are also elevated.
• When sovereign bond prices fall, banks’ balance sheets and pension funds feel it — and the sell-off can feed on itself.
• Historical precedent: Greece’s crisis caused outsized stress despite Greece being a small share of Eurozone GDP — these dynamics are nonlinear and contagious.

Central banks have tools — QE, yield-curve control, backstops. They used them for a decade; they’ll probably return to them if the market dislocation deepens. That’s not a comfort — it’s a guarantee that policy will be reactive and messy.

Energy and industry: a genuine opportunity for Canada

There is a silver lining: Canada’s energy sector can play a constructive role in global energy supply. Alberta’s oil production hit a record (~4.32 million barrels per day in July). Political rhetoric is shifting to acknowledge realistic energy demand and the role of responsibly produced resources.

• LNG discussions with Germany and other partners show there’s still a business case for fossil fuels as countries transition.
• Ethical, indigenous-partnered projects can be an economic win for Canada if approvals and policies align.

But policy inconsistency and overly optimistic forecasts from select agencies in past years have muddied planning. The good news is the conversation seems to be adjusting to reality.

Technology, labour and the structural shifts

Corporate technology shifts are changing labour dynamics. Examples we touched on:

• Coinbase reports increasing code written by AI (from ~20% to >40% YTD), heading toward 50% — automation is accelerating productivity changes.
• Legacy tech firms (and others) are still cutting staff as they adapt to new cost structures.

Automation and offshore/temporary-labour strategies have both expanded beyond what many realize. When labour supply policies change, those company models face stress.

So where do we go from here?

The short answer: prepare for a messy few quarters. Expect higher volatility, policy pivots, and rising long-term rates in parts of the sovereign market. Some specifics to watch:

1. Data: weekly employment, monthly nonfarm payrolls (US), and next inflation prints. They will drive rate-expectation swings.
2. Bonds: long-end sovereign yields and central-bank responses — these could ignite cross-border contagion if stress increases.
3. Population & migration policy: changes here materially shift housing, education and labour markets.
4. Commodities & energy: Canada can benefit from appropriately supported energy exports, particularly LNG.
5. Households & businesses: those who cut leverage, hold liquidity and pick durable niches will survive and have opportunities.

Parting thoughts

We’re not here to sugarcoat: the road ahead looks bumpy. Unemployment is likely to rise, sovereign bond markets are sending warning signs, and political pressure on immigration and temporary worker programs creates real short-term dislocation.

But moments of disruption are also moments of opportunity. If you’re a prudent investor, business owner, or policymaker, you can use this time to build resilience — lower leverage, focus on cash flow, and position for the structural shifts (energy, exports, automation) that will matter in the decade ahead.

If you want the full back-and-forth that produced these takeaways, check out episode 204 of The Loonie Hour for the full discussion — and subscribe if you enjoy frank, data-driven macro conversations.

Thanks for reading — more weekly notes next episode.