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TORONTO, ONTARIO--(Marketwired - May 22, 2013) - Despite recent fluctuations in gold prices, the global economy is in relatively good health, a sign that bodes well for Canada, according to BMO Harris Private Banking's May Market Outlook Report.

"For the last two to three years, broad trends have driven commodities to perform as a homogeneous group," said Daniel Theriault, Chief Investment Strategist, BMO Harris Private Banking. "The subsectors - precious metals, base metals, agriculture and energy - are now decoupling, which could have positive implications for Canada's economic outlook."

Highlights from the report:

Gold Prices Stirred, Not Shaken

Gold prices are one indication of the global economy's health, with high prices typically suggesting that investors are anticipating inflation and should seek a safe haven to protect their assets. According to the report:

• The recent drop in gold prices is part of a general weakness in commodity prices since the beginning of 2013.
• Analysts have blamed the Eurozone's ongoing debt crisis as well as Cyprus' plan to sell off its gold reserve as the cause of gold's price drop, yet Cyprus is likely too small to have a significant impact.
• Gold is overvalued at its current price but appears to be returning to more realistic levels.

"While the U.S. dollar has currently replaced gold as the primary reserve currency for central bankers around the world, both gold and the greenback are important to investors as stores of value," said Mr. Theriault. "There is a caveat, however: investors should be wary of purchasing gold above its long-term, inflation adjusted price."

U.S. Growth Pushes Forward

Equity markets in the United States continued their upward trend in April, adding to impressive gains in the first four months of the year. However, the report noted that the economic data was less upbeat:

• In the U.S., job market numbers were weak in March.
• The Institute for Supply Management Index of new orders rose only slightly.
• The economy weakened due to concern over sequestration spending cuts.
• However, U.S. stocks advanced 1.93 per cent, bringing the year-to-date return of the S&P 500 to 12.74 per cent.
• The 10-year U.S. Treasury bond - a good proxy for the overall U.S. bond market - peaked at a yield of 2.04 per cent in mid-March and closed the month at 1.85 per cent

Canada's Lacklustre Market Performance

"In Canada, markets slumped by 2.07 per cent, bringing the overall return for the year to 1.2 per cent," said Mr. Theriault. "Most of the underperformance however is linked directly to the materials sector."

The report noted that Canada's economy will likely lag that of its southern neighbour by about a half percentage point over the next year or so. Furthermore, as the U.S. Federal Reserve will be keeping interest rates low, and continuing to do so for the remainder of 2013, the Bank of Canada will likely follow suit.

Fixed Income Performance

April was an interesting month in the world of fixed income, notes the BMO Harris Private Banking report:

• Bond returns were driven more by term exposure than by credit type.
• The overall DEX Canadian Universe Bond Index increased by 1.14 per cent, the Short Term Bond Index (1-5 years) increased by 0.37 per cent, the Mid Term Bond Index (5-10 years) returned 1.25 per cent and the Long Term Bond Index (10+ years) lost 2.22 per cent.
• Performance of high-yield bonds was driven primarily by two factors: monetary policy and the underlying health of the corporate sector.

"Investors are still anxious about Europe's debt woes and cooler economic growth in the U.S.," said Mr. Theriault. "Deflationary fears are resurfacing, and that will continue to impact the bond market."

To view the full report, please visit: http://www.bmo.com/harrisprivatebanking/insights/hpb/media/market-commentary?nav=left.

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