Central bankers playing pin the tail on the data

No rate consensus as changing data keeps bankers on edge

The decision by Bank of Canada Governor Tiff Maklem to leave short-term interest rates unchanged in mid-June was not unexpected, although he made it clear that he and the Board of Governors stood ready to either raise or lower the 2.25% short-term rate depending upon how the data developed.

Kevin Warsh, the new Chair of the U.S. Federal Reserve, and the Federal Open Market Committee decided to keep the target U.S. federal funds rates unchanged at 3.5%-3.75%. The European Central Bank (ECB) raised its short-term rates to 2.25% from 2% the previous week, following in the footsteps of Australia and Norway.

It’s now apparent that there is a wide range of opinions amongst central banks as to how transitory the present jump in CPI inflation is, and whether or not it may feed through into higher wages and other prices.

Some respected commentators, such as former Merrill Lynch Canada strategist David Rosenberg, believe that the labour market has weakened sharply, partially driven by the job losses caused by the introduction of Artificial Intelligence (AI) tools. Outside of the boom in data centre construction and associated industries like utilities, they also believe that the rest of the U.S. economy is near recession.

In fact, Canada technically entered a recession in the last six months, as GDP growth for the fourth quarter of 2025 and the first quarter of 2026 was negative, in part due to the effects of tariffs on exports to the U.S.

As a result, central banks have felt comfortable lowering interest rates, with the Bank of Canada having more than halved its short-term rate, to 2.25% from 5%. The Fed has moved from 5.25% to 3.5%, while the ECB and the Bank of England also reduced rates to 2% and 2.25%.

Are central banks eyeing rate hikes?

Now investors are undecided whether the rate increases by the ECB and the Reserve Bank of Australia are the beginning of a more general move, with the Bank of Japan expected to raise rates soon, or if the ECB is erring on the side of unnecessary caution because their 2011 rate increases led to the Eurozone crisis.

The on-again-off-again Iran-U.S. war saw oil prices spike to over US$100 per barrel, only to back off again as tentative peace deals were floated. Should oil stabilize at around their current US$75-$80 a barrel, as the futures curve is indicating for year-end, then central banks would be justified in holding interest rates at present levels, as the spike in energy prices will genuinely have been transitory and have little chance of flowing through into wages and broader prices.

This is particularly the case in Canada, where, as noted, the economy has entered a technical recession and unemployment is hovering around 6.5%-7%. Canadian real estate remains in a slump, with average mean house prices down 4% in the year to April 2026 and down 20% from their post-Covid peak in February 2022.

The major banks always point out that unemployment is the best predictor of mortgage defaults and unemployment has risen from a low of 5.3% in 2022 to the current range. The price performance of the Canadian banks has certainly not reflected serious concerns over higher levels of defaults, with all of the Big Six up 50%-70% over the last year and 15%-35% year to date before dividends.

The banks all took the precaution of increasing their provision for credit losses (PCLs) in the first half of last year after “Liberation Day” tariffs were announced by President Trump but have not felt the need to increase them subsequently. A couple have even reduced them a little because the effects of the higher tariffs have not been as severe as feared.

Life insurers are another beneficiary of the low and falling interest rates with Great West, IA, Manulife, and Sun Life up 15%-30% over the last year before dividends. Financials remain a core component of an income-generating portfolio, with dividend yields ranging from 2.75% to 4.25% even after the strong price performance of the last 12 months.

The Iran-U.S. conflict has reinforced the need for investors to factor in geopolitical risk into their calculations. The era of low tariffs, globalization, and just-in-time supply chains has been replaced by geopolitical security, strong defence spending, and just-in-case supply considerations.

This makes Canada even more attractive as an investment. Canada has long-life natural resource assets in a politically stable environment with no exposure to geopolitical risks in the Middle East or Eastern Europe. In addition, Canada boasts several strategic assets, such as uranium, copper, cobalt, hydro power, and oil and LNG exports.

With the AI data centre buildout and the increasing penetration of electric automobiles, copper has become an important asset required for both long-term processes. Investors looking for exposure to copper might look at a major Canadian gold miner that has recently made a copper-focused acquisition in Canada and has a new copper/gold mine coming on stream in Greece.

Eldorado Gold profits from its copper holdings

Eldorado Gold Corp. (TSX: ELD) is a gold and base metals producer with a 30-year history. It has four operating mines in three countries (Canada, Greece, Turkey). In the year ending Dec. 31, 2025, Eldorado had revenues of $1.8 billion on sales of 488,268 oz. at an all in sustaining cost (AISC) of $1,664 per oz. and net earnings of $507.3 million ($2.50 per share). Share price has risen 60% over the last 12 months but down 6% year to date, although it has rebounded as gold bounced from the $4,000 per oz. level recently.

Eldorado has a steady output of gold (around the 500,000 oz. annual level) from its four existing mines. While exploration around the existing mines is providing some opportunity for growth, bringing on new mines and acquisitions will effectively double gold equivalent ounces (GEOs) to around 1 million oz. annually, as well as making Eldorado a major copper producer with over 100 million lbs. of copper a year.

Its mines are in politically stable jurisdictions where Eldorado has a lengthy operating history. While the rise in the gold price has contributed to its strong growth in earnings, its reasonable AISC under $2,000 per oz. means it is well positioned even if the gold price falls. Selling at less than 11 times 2026 earnings, it is reasonably valued.

For the first quarter ended March 31, Eldorado produced 100,358 oz. at an AISC of $1.942 $1,942 per oz. and generated revenues of $532.4 million, earnings of $136.4 million ($0.69 per share), and cash generated from operating activities of $141.4 million. It maintained its 2026 forecast of 490,000-590,000 oz. at an AISC of $1,670-$1,870 per oz.

Eldorado initiated a quarterly dividend of $0.075 per share in the second quarter, equivalent to a yield of 1%, which is eligible for the dividend tax credit for Canadian investors and taxed at two thirds of top marginal rate.

Note that like all mineral stocks, Eldorado is affected by market risk, share price volatility, changes in the price of gold and copper, and operational issues at its mines. Before investing, consult with your financial advisor to ensure the stock aligns with your financial objectives and risk-tolerance level.

Gavin Graham is a veteran financial analyst, money manager, formerly Chief Investment Officer of BMO Financial, and a specialist in international investing, with over 35 years’ experience in global investment management. He is currently Chief Investment Officer of Calgary-based Spire Wealth Management.

Notes and Disclaimer

Content copyright © 2026 by Gavin Graham. Excerpted from an article that first appeared in The Income Investor newsletter. Used with permission.

The commentaries contained herein are provided as a general source of information, and should not be considered as investment advice or an offer or solicitations to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Investors are expected to obtain professional investment advice.

The views expressed in this post are those of the author. Equity investments are subject to risk, including risk of loss. No guarantee of performance is made or implied. The foregoing is for general information purposes only. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.

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