Author: Consultant

The federal government has moved to end the railway stoppage, sending the labour dispute to the Canada Industrial Relations Board for final arbitration, but it’s still not clear how soon service will resume amid a dispute that is putting much of the Canadian economy at risk.

Labour Minister Steve MacKinnon made the announcement on Thursday, less than 24 hours after Canadian Pacific Kansas CityCP-T +0.84%increase(CPKC) CP-T +0.84%increase railway and Canadian National Railway CNR-T +0.58%increaseCNR-T +0.58%increaselocked out workers and shut down their rail networks.

The two companies made the move after they each failed to secure new contracts by Wednesday at midnight with the Teamsters union, which declared a strike at CPKC.

Both railways responded by announcing plans to restart operations. CN said its lockout was over as of 6 p.m. ET on Thursday and said rail service would resume “as soon as possible.” CPKC said it would begin hauling freight once it received the order from the CIRB.

The Teamsters Canada Rail Conference, which has opposed arbitration, called the order “shameful” and accused the government of doing so because it does not have the votes in Parliament to legislate a solution that would ”appease“ the railways. “Meanwhile, picket lines remain in place,” the union said.

When asked, Mr. MacKinnon indicated he could not guarantee that the Teamsters would not challenge the process.

A Teamsters spokesman, Christopher Monette, said it is too soon to say if the union planned to fight the order. “We are still reviewing the minister’s referral and seeking advice from counsel. The situation remains fluid,” Mr. Monette said.

Mr. MacKinnon said he is using his power under the law to skirt the collective-bargaining process and resolve the impasses because of the risks to Canadians and the economy created by the shutdowns. He said he is directing the CIRB to ensure that rail operations are resumed “forthwith.”

“Millions of Canadians rely on our railways every day – workers, farmers, ranchers, commuters, small businesses, miners, chemists, scientists,” he said. “The impacts cannot be understated and they extend to every corner of this country.”

Ibbitson: The railway worker lockout was incredibly damaging, with more disruptions on the horizon

Grain farmers and pork producers bearing the brunt of rail stoppage

Mr. MacKinnon declined to predict when trains would resume running, noting that the CIRB is an independent agency. “I assume the trains will be running in days but I want to be deferential to the process here,” he told reporters in Ottawa. He is also directing the CIRB to extend the previous collective agreements during the process.

The shutdown has a far-reaching impact for multiple industries on both sides of the Canada-U.S. border and commuters in major cities such as Toronto and Vancouver that run on CPKC tracks. Business groups estimated that shuttering both of Canada’s freight railways would cost the economy billions, and lobby associations and some premiers urged the federal government to intervene.

Shipments of grain, chlorine for cities’ water-treatment plants, consumer goods and other freight have all ground to a halt and more than 9,000 rail employees were off the job Thursday.

In a statement, CPKC said it “will follow the order of the CIRB once it executes the minister’s direction. Our teams are already preparing for the safe and orderly resumption of our rail network and further details about timing will be provided once we receive the CIRB’s order.”

Both CPKC and CN said they were disappointed that the government had to intervene after months of collective bargaining produced no agreements.

“The government has acted to protect Canada’s national interest,” said Keith Creel, chief executive officer of CPKC, in a statement. “We regret that the government had to intervene because we fundamentally believe in and respect collective bargaining; however, given the stakes for all involved, this situation required action.”

The two sides are far apart in their demands and both companies have for weeks asked the federal government to send their cases to binding arbitration. Mr. MacKinnon declined last week, insisting that they work out a deal at the negotiating table.

Mr. MacKinnon said he wanted to give the negotiators and mediators the chance to reach deals. But when the deadlines passed and the lockouts occurred, he realized it was time to act.

Business groups, which have called for intervention, welcomed the government’s move.

“A prolonged stoppage would have imposed enormous costs on Canadian business and workers,” said Dennis Darby, head of Canadian Manufacturers and Exporters.

The Conference Board of Canada says a two-week stoppage at both railways would cause a $3-billion loss in Canada’s nominal gross domestic product for this year. Households would see a $1.3-billion decline in wages while business profits would fall by $1.25-billion.

CPKC, CN and the union have been in separate negotiations for several months. The Teamsters had issued a strike notice at CPKC but not at CN. Contract talks assisted by federal mediators resumed on Thursday in Montreal and Calgary.

In Calgary, Mr. Creel presented the union negotiators with a final offer shortly before the midnight Wednesday deadline, with improved wages and scheduling provisions.

“That offer was presented and it was rejected before the deadline,” said Patrick Waldron, a CPKC spokesman.

Business groups warn that the shutdown of the railways, which carry $380-billion in goods every year, will cause lost jobs, closed factories and shortages of consumer goods and raw materials.

The railway shutdown is raising supply chain concerns in the United States. In a sign of how closely the U.S. is watching the issue, Mr. MacKinnon on Thursday spoke with his American counterpart, Acting Labour Secretary Julie Su.

Air Canada AC-T -0.90%decrease pilots say they have voted overwhelmingly to approve a strike mandate, putting them in a position to walk off the job as early as Sept. 17.

The Air Line Pilots Association, which represents more than 5,400 aviators at the country’s largest carrier, says the vote passed by 98 per cent on Thursday.

The employees have been negotiating with Air Canada since June 2023, with ongoing talks overseen by a federal conciliator.

That process is slated to wrap up this Monday, followed by a 21-day cooling-off period.

Charlene Hudy, head of the union’s Air Canada contingent, says the vote sends “a clear message to management” that pilots are willing to take job action to secure a better contract.

Air Canada CEO Michael Rousseau told analysts earlier this month that both sides were in agreement on several points and that he hopes to reach a deal in the coming weeks.

Canada’s top two railroads locked out more than 9,000 unionized workers, triggering an unprecedented rail stoppage that could cause billions of dollars worth of economic damage and roil North American supply chains.

The companies – Canadian National Railway (CN) and Canadian Pacific Kansas City (CPKC) – and the Teamsters union blamed each other for the work stoppage after multiple rounds of contract talks failed to yield a new agreement.

“Throughout this process, CN and CPKC have shown themselves willing to compromise rail safety and tear families apart to earn an extra buck,” Teamsters Canada Rail Conference (TCRC) president Paul Boucher said, adding that the parties were continuing the talks.

The two railroads said in separate statements that they bargained in good faith and had made multiple offers with better pay and working conditions.

“Despite our best efforts, it is clear that a negotiated outcome with the TCRC is not within reach,” CPKC said in a statement on Thursday.

The company on Thursday reiterated its demand for a binding arbitration to resolve the disputes.

The Canadian government has so far asked the railroads and the union to work together and reach an agreement, choosing not to use its power to refer the dispute to binding arbitration.

The two companies had said they would lock out workers at 12:01 a.m. ET on Thursday.

As that deadline neared, business groups and industries sounded alarm over the possible stoppage that they say would raise costs and lead to ‘devastating consequences.’

Ratings agency Moody’s said on Wednesday that the rail stoppage could cost over C$341 million per day.

Canada is the world’s second-largest country by area and relies heavily on rail transport, which hauls around C$380 billion ($277 billion) worth of goods annually.

The stoppage is set to cripple shipments of grain, potash and coal while also slowing the transport of petroleum products, chemicals and autos.

Businesses in the U.S. are set to be impacted as well, as the two economies are highly integrated, though the companies have said rail networks south of the border would continue to operate.

Rail transport accounted for 14% of total bilateral trade of $382.4 billion between the countries for the first half of the year, according to the U.S. Department of Transportation.

CN and CPKC’s coast-to-coast rail networks in Canada connect south of the border and serve as important supply chain links to trade corridors and ports across North America.

Stalemate

The union and the two companies have been in talks for months after the previous contract expired last year but have differed on provisions such as relocation, rest periods and scheduling.

“The main obstacles to reaching an agreement remain the companies’ demands, not union proposals,” Teamsters said on Thursday.

In its latest offer, CN said it improved wages and aligned working hours with federally mandated rest provisions, which it claimed would see employees work fewer days in a month. The union did not respond after it presented the offer, the company said.

The union has opposed CN’s “forced relocation scheme”, which could see workers ordered to move across the country.

CPKC said its offer for Train and Engine division employees included competitive wage hikes and increased shift differentials.

Teamsters said on Thursday it had put forward multiple offers, none of which were seriously considered by either company.

Analysts say profits at both railroads will take a hit from the strike.

“Our rough calculations show that each day under a strike/lockout will negatively impact CN’s profit per share by about C$0.04 and CP’s by C$0.02,” Desjardins analyst Benoit Poirier wrote in a note earlier this week.

Oil prices were steady on Thursday, after falling for four straight days as investors worried about the global demand outlook, but a decline in U.S. fuel inventories provided a floor.

Brent crude futures gained 31 cents, or 0.41 per cent, to $76.36 a barrel, while U.S. West Texas Intermediate crude futures inched 18 cents up, or 0.25 per cent to $71.80, at 1031 GMT.

So far this week, Brent has fallen 4.2 per cent while WTI crude is down 6 per cent.

Prices plunged on Wednesday as revisions to jobs data in the United States, added to concerns about crude demand after weak economic data out of China last week.

The United States is the world’s biggest oil consumer and China is the world’s largest oil importer.

A report of revised employment statistics released on Wednesday showed fewer jobs were added this year in the United States than previously reported.

“The potential weakness in the U.S. economy coupled with a lacklustre recovery in China suggests oil demand growth is to be towards the lower end of expectations,” said Panmure Liberum analyst Ashley Kelty.

Underpinning prices, a U.S. government report on Wednesday showed U.S. crude, gasoline and distillate inventories fell in the week ending Aug. 16, while refinery runs increased.

“The larger than expected draw in U.S. stocks last week was a fillip which limited losses, with the EIA reporting a draw of 4.6 million barrels (mmbbls) last week – well above the forecast 2.6 mmbbl draw,” Kelty added.

Investors are also expecting that the Organization of the Petroleum Exporting Countries (OPEC) and its allies such as Russia, known as OPEC+, will lift some voluntary output cuts in October, adding more supply.

Concerns over how OPEC+ production would pan out in the fourth quarter if the cuts are lifted has exacerbated price weakness, though they could be paused or reversed if needed.

“The downward pressure on prices makes it increasingly likely that OPEC+ will have to scrap their plans for gradually increasing supply from October. Failing to do so, will likely put further pressure on prices,” said ING analysts in a client note.

Concerns over the Israel-Gaza war have eased in the past week as the U.S., Israel and Hamas are trying to hammer out a ceasefire deal, though U.S. diplomatic efforts earlier this week ended without a truce.

“Upside catalysts for oil may seem limited for now, with rising odds of a ceasefire in the Middle East, which saw market participants pricing out some of the geopolitical risks,” IG market strategist Yeap Jun Rong said in an e-mail.

A US$2.6-billion provision that Toronto-Dominion BankTD-T +0.47%increase recorded to cover expected regulatory fines wiped out the lender’s fiscal third-quarter profits, leaving TD with a small loss as it works to fix lapses in its anti-money laundering program.

The bank lost $181-million, or 14 cents per share, in the quarter that ended July 31. That compared with profit of $2.88-billion, or $1.53 per share, in the same quarter last year.

Adjusted to exclude the massive regulatory provision and other, smaller one-time items, TD said its profit was $3.65-billion. That was effectively unchanged year over year.

On an adjusted basis, the bank earned $2.05 per share, which fell just short of the $2.07 analysts had expected, according to data from the London Stock Exchange Group.

TD kept its quarterly dividend unchanged at $1.02 per share.

TD is the first of Canada’s large banks to report third-quarter earnings, with its five largest rivals set to release results from Aug. 27 to 29.

The bank set aside higher loan loss provisions of nearly $1.1-billion, anticipating that more customers could default on loans as high interest rates and a slowing job market put pressure on households and businesses. That matched analysts’ expectations, but was up 40 per cent from $766-million in the same quarter last year.

TD also recorded a $110-million restructuring charge stemming mostly from employee severance costs and efforts to trim its expenses on real estate.

The bank’s results were “weaker than expected,” said RBC Dominion Securities Inc. analyst Dark Mihelic, “but not that bad.”

“We have a neutral view” of TD’s third-quarter results, he said in a note to clients.

TD has been mired in multiple U.S. regulatory and criminal probes over serious deficiencies in its defences against money laundering. The bank is now bracing for a total fine of more than US$3-billion ($4-billion), and is expecting to reach a combined settlement with multiple regulators, including fines and other penalties, by the end of the calendar year.

Against that backdrop, TD’s U.S. retail banking division reported a loss of $2.28-billion, driven by the large provision against fines. Adjusted profit was $1.29-billion, down $77-million from a year earlier as higher loan loss provisions and costs modestly outpaced rising revenue.

Profit from wealth management was roughly unchanged year over year at $430-million. Revenue rose 13 per cent, but so did costs, which included higher bonus pay for employees.

Retail banking in Canada fared better, with profit up 13 per cent to $1.87-billion, as revenue increased 9 per cent to $5-billion. Loan volumes increased 6 per cent, but profit margins on those loans decreased.

Profit from TD’s wholesale division, which includes its TD Cowen division in the U.S., was $317-million, up $45-million from the third quarter last year. The bank had higher revenue from trading, lending and fees from advisory and underwriting work.

TD’s capital levels declined, with a common equity Tier 1 ratio – an important measure of the bank’s resilience and ability to absorb losses – of 12.8 per cent. After the fiscal fourth quarter began in August, the bank sold shares in The Charles Schwab Corp. worth more than $2-billion to bolster its capital levels, helping offset the effect of its large regulatory provisions.

Toronto-Dominion Bank TD-T +0.47%increase is setting aside an additional US$2.6-billion to cover looming penalties in the United States over failures in the bank’s anti-money-laundering program – systemic breaches that have mired the institution in damaging criminal and regulatory probes.

TD is now bracing for a historic fine of more than US$3-billion ($4-billion), including a provision of US$450-million that it earmarked in April, to settle investigations from multiple U.S. regulators.

The total potential fine would deal a landmark blow to Canada’s second-largest bank. TD has the financial resources to absorb it, but the hit is severe enough that the bank was compelled to sell shares it owned in another major financial institution to ensure that its capital reserves stay above a minimum threshold set by Canada’s banking regulator.

It would be the largest penalty that a Canadian bank has paid in the United States, and is believed to be the second-largest U.S. regulatory penalty levied against any bank over similar issues.

The additional provision reflects “the bank’s current estimate of the total fines related to these matters,” TD said in a statement released Wednesday. The bank is expecting “a global resolution, which will include monetary and non-monetary penalties,” and anticipates that it “will be finalized by calendar year end.”

TD will record the provision as part of its fiscal third-quarter results, which will be released on Thursday.

The bank has been wrestling with the fallout from lapses in its anti-money-laundering (AML) controls for well over a year, and is still negotiating with U.S. regulators, including the Office of the Comptroller of the Currency (OCC), the Financial Crimes Enforcement Network (FinCEN) and the U.S. Department of Justice.

“We recognize the seriousness of our U.S. AML program deficiencies, and the work required to meet our obligations and responsibilities is of paramount importance to me, our senior leaders, and our boards,” chief executive officer Bharat Masrani said in a statement.

TD’s AML issues are emblematic of broader problems that have dogged the bank. It has contributed to an exodus of senior TD leaders and raised questions about a perceived erosion in the bank’s prized culture. And it has fuelled speculation that the bank is struggling with its succession plan for Mr. Masrani, the CEO who is shouldering responsibility for most of the bank’s woes.

TD Bank’s dirty laundry: Inside the cultural shift that seeded a money laundering crisis, succession woes and a leadership exodus

The bank has already spent at least $500-million on fixing its AML systems, and made a flurry of personnel changes this summer. Chief compliance officer Monica Kowal departed and the bank recruited a respected expert on preventing financial crime, Stuart Davis, to advise chief risk officer Ajai Bambawale.

As the U.S. AML investigations dragged on, shrouded in secrecy, TD’s stock price suffered from uncertainty about how harsh the penalties would be. Over that span, TD has effectively lost the premium valuation that its shares used to command, and its performance has trailed its Big Six bank peers.

The AML issues also wiped out the bank’s most ambitious expansion plan under Mr. Masrani’s 10-year tenure. In May, 2023, the bank called off its proposed US$13.4-billion takeover of Tennessee-based First Horizon Corp. FHN-N +0.06%increase after TD was unable to win timely approvals from U.S. regulators. The deal would have made it the sixth-largest bank in the U.S. by assets and bolstered its presence in fast-growing southeastern U.S. states.

Since then, damaging details have emerged about the extent of the lapses in TD’s controls, and the bank was ensnared in America’s efforts to fight a global drug war. TD featured prominently in an investigation into a criminal ring that laundered US$653-million worth of drug money through financial institutions in New York, New Jersey and Pennsylvania – including several of TD’s branches.

Additionally, separate criminal complaints allege that two former TD employees who worked at branches in New Jersey and Florida accepted bribes and helped to shuttle millions of dollars in drug-trafficking proceeds from the U.S. to Colombia, in some cases through accounts linked to shell companies.

How TD Bank got caught up in the global drug war, helping to launder hundreds of millions of dollars

A US$3-billion penalty for the bank would exceed the predictions that most analysts had already incorporated into their financial models, but is lower than the US$4-billion they would have considered a critical threat to the bank’s capital.

It would eclipse a US$2-billion settlement with domestic and U.S. authorities that Denmark’s Danske Bank DNKEY +0.07%increasepaid over its dealing with alleged Russian criminals at its branches in Estonia, and US$1.9-billion that British-based HSBC Holdings PLC HSBC-N +1.10%increase paid to settle allegations it laundered money for Colombian and Mexican drug cartels.

Only Wells Fargo & Co.’s WFC-N -1.23%decrease US$8-billion in settlements over a four-year period, which ended in 2022, would be larger, after regulators alleged that its employees created false accounts for the bank’s clients.

“While the market now has certainty surrounding the amount of the charge, this is offset by the fact that it is larger than expectations and the impact this has on capital,” said John Aiken, an analyst at Jefferies Securities Inc., in a note to clients on Wednesday.

TD said it has sold 40.5 million shares that it owned in The Charles Schwab Corp. SCHW-N -0.42%decrease to shore up its capital reserves. TD’s stake in Schwab, a leading discount brokerage, falls to 10.1 per cent from 12.3 per cent. The bank agreed not to sell any more of its stake for 45 days, and said Wednesday that it has “no current intention to divest additional shares.”

The bank’s common equity Tier 1 capital ratio – a key measure of its financial resilience – will be 12.8 per cent as of July 31, but is set to drop by a further 35 basis points in the fourth fiscal quarter, which ends Oct. 31. But the sale of Schwab shares will add back 54 basis points of capital, helping fill the hole the provision creates. (100 basis points equal 1 percentage point).

Investors who have been waiting for more clarity on the scope of TD’s punishment over AML issues will take some comfort that the bank believes it knows the upper limit for expected fines and provided a timeline for some form of resolution – though regulators still control the timing of any settlement.

The lingering cloud that still hangs over TD’s future is the fear that it could face constraints on its U.S. business – from non-monetary penalties handed down by regulators – until remediation of its AML problems is fully resolved.

“We still do not know if there will be any restrictions on TD’s future growth in the U.S. and note that the [Schwab] sale does impede future earnings,” Mr. Aiken said.

With reports from Andrew Willis and Tim Kiladze

 Published: 8/21/2024 3:18 PM ET | 

Despite data showing a big drop in U.S. crude inventories in the week ended August 16th, oil prices fell to a seven-month low on Wednesday amid concerns about the outlook for demand.

Data from the Labor Department saying the U.S. economy added far fewer jobs than originally reported in the year through March presumably hurt investor sentiment.

Concerns about economic slowdown in China and weak outlook for demand from the nation also weighed on oil prices.

West Texas Intermediate Crude oil futures for October ended down $1.24 or about 1.7% at $71.93 a barrel.

Brent crude futures dropped to $76.05 a barrel, down $1.15 or about 1.49% from the previous close.

Data from the Energy Information Administration (EIA) showed crude inventories in the U.S. fell by 4.6 million barrels last week, after rising by 1.4 million barrels a week earlier. Oil inventories were expected to drop by 2.8 million barrels.

At 426.0 million barrels, U.S. crude oil inventories are about 5% below the five-year average for this time of year, the EIA added.

The report said motor gasoline inventories also fell by 1.6 million barrels last week and are about 3% below the five-year average for this time of year.

Distillate fuel inventories, which include heating oil and diesel, also slumped by 3.3 million barrels last week and are about 10% below the five-year average for this time of year.

Meanwhile, on the geopolitical front, the United States is pushing for a “decisive moment” for ceasefire negotiations between Israel and Hamas, but a breakthrough appears elusive.

U.S. crude stocks, gasoline and distillate inventories all fell by more than expected in the week ending August 16 as demand and exports rose, the Energy Information Administration (EIA) said on Wednesday.

Crude inventories fell by 4.6 million barrels to 426 million barrels in the week ended August 16, the EIA said, compared with analysts’ expectations in a Reuters poll for a 2.7 million-barrel draw.

Oil prices rose to session highs following the larger-than-anticipated decline in inventories, but eased shortly after on weaker U.S. economic data.

Brent futures were up about 5 cents to $77.22 a barrel at 11:05 a.m. EDT (1505 GMT), while U.S. futures were at $73.09 a barrel, down roughly 7 cents.

Crude stocks at the Cushing, Oklahoma, delivery hub fell by 560,000 barrels.

Net U.S. crude imports rose last week by 78,000 barrels per day, while exports rose by 289,000 bpd to 4.05 million bpd, EIA said.

“A tick higher in both refinery runs and exports has encouraged a draw to crude inventories, while buoyant implied demand for gasoline and distillates has helped to round out a trio of draws as we fast approach the finale of summer driving season,” said Matt Smith, an analyst for ship tracking firm Kpler.

Refinery crude runs rose by 222,000 barrels per day in the week ended August 16, and utilization rates rose by 0.8 percentage points in the week to 92.3 per cent, the EIA said.

U.S. gasoline stocks fell by 1.6 million barrels in the week to 220.6 million barrels, the EIA said, compared with analysts’ expectations in a Reuters poll for a 933,000 barrel draw.

Product supplied for gasoline, a proxy for demand, was up 148,000 bpd week-over-week to 9.19 million bpd.

Gasoline stocks on the U.S. Gulf Coast are now at their lowest seasonal level since 2019.

Distillate stockpiles, which include diesel and heating oil, fell by 3.3 million barrels in the week to 122.8 million barrels, versus expectations for a 215,000 barrel drop, the EIA data showed.

Both U.S. gasoline and heating oil futures were up following bigger than expected draws in stockpiles. Gasoline futures turned negative along with U.S. crude in the hour following the report.

A gold rush is here. The precious metal hit an all time high this week.

The spot price for gold closed Tuesday above $2,514, according to data from FactSet. That’s the highest closing price recorded for the commodity to date. Here’s what you need to know.

What is the price of gold today?

The spot price of gold closed Tuesday at just over $2,514 per Troy ounce — the standard for measuring precious metals, which is equivalent to 31 grams. That would make a gold bar or brick weighing 400 Troy ounces worth more than $1 million today.

This week’s record high means that the price of gold has climbed hundreds of dollars per Troy ounce over the last year. Tuesday’s price is up nearly $620 from this time in 2023.

Why is the price of gold going up?

There are a few factors behind the recent gains.

Interest in buying gold often comes at times of uncertainty — with potential concerns around inflation and the strength of the U.S. dollar, for example, causing some to look for alternative places to park their money. Gold also saw a surge in the early days of the COVID-19 pandemic.

Giovanni Staunovo, a commodity analyst at UBS Global Wealth Management, said the main drivers of recent gold gains have been the weaker U.S. dollar and expectations that the Federal Reserve will cut its benchmark interest rate next month. With particular concern focused on the health of the job market, all eyes will be on a Friday speech from Fed Chair Jerome Powell in Jackson Hole, Wyoming.

Another factor is strong demand from central banks — which is currently well-above the five year average, notes Joe Cavatoni, senior market strategist at the World Gold Council. Cavatoni says this “reflects heightened concern with inflation and economic stability.” He also pointed to ongoing geopolitical tensions, among other factors, that have caused some to buy more gold recently.

The wars in Ukraine and Gaza have notably fueled uncertainty around the world. And numerous countries, including the United States, are also in the midst of a tumultuous election year — which could prove crucial to future economic policy.

Is gold worth the investment?

Advocates of investing in gold call it a “safe haven,” arguing the commodity can serve to diversify and balance your investment portfolio, as well as mitigate possible risks down the road. Some also take comfort in buying something tangible that has the potential to increase in value over time.

Staunovo’s team at UBS forecasts the price of gold will reach $2,600 by this year’s end — and $2,700 by mid-2025. UBS sees lower U.S. interest rates and the weaker dollar supporting inflows into gold ETFs, or exchange traded funds, consequently boosting investment demand.

Still, future gains are never promised and not everyone agrees gold is a good investment. Critics say gold isn’t always the inflation hedge many say it is — and that there are more efficient ways to protect against potential loss of capital, such as through derivative-based investments.

The Commodity Futures Trade Commission has also previously warned people to be wary of investing in gold. Precious metals can be highly volatile, the commission said, and prices rise as demand goes up — meaning “when economic anxiety or instability is high, the people who typically profit from precious metals are the sellers.”

If you do choose to invest in gold, the commission adds, it’s important to educate yourself on safe trading practices and be cautious of potential scams and counterfeits on the market.