Market swoons on retreat from gold

A Toronto Stock Exchange market wrap from Aug. 16, when gold and other resource stocks plunged in tandem with worldwide commodity prices.

By Jamie Sturgeon, Financial Post

While gold remained the medal of choice at the Beijing Games yesterday, investors poured out of the precious metal, leading it to its biggest weekly decline in a quarter-century and contributing to another sell-off of the S&P/ TSX composite index.

As investors continued to rally to the U. S. dollar on concerns that worldwide economic activity is ebbing, gold for August delivery ended the day at US$786.00 an ounce, down US$22.20, or 2.7% for the session. The five-day loss of 8.3% is the worst one-week drop in the commodity since Feb. 25, 1983.

In lockstep with the commodity's decline, Barrick Gold Corp. fell $1.71, or 4.8%, to $33.94 while Goldcorp Inc. slid $1.77, or 5.4%, as the S&P/TSX gold subindex fell 4.8%.

The exodus from gold and other resource stocks plunged the main index to its lowest level since March. The S&P/TSX composite fell 262.21 points, or 2%, to close at 13,096.70.

"Gold got bid up because people were moving out of the U. S. dollar and as they're beginning to move back in, they're taking their money out of commodities, and gold specifically," said Keith Summers, chief investment officer for Toronto-based Stonegate Private Counsel LP.

The U. S. greenback continued to rise against pretty much every global currency and its 11-day winning streak against the British pound is the first time that has happened in at least 37 years, according to Bloomberg News. The greenback has gained 6% against the Canadian dollar since July 18.

Negative economic data concerning economies across the globe have begun to surface, while conditions in the United States may be reaching a bottom, said John Stephenson, senior vice-president at First Asset Investment Management.

"People are saying that things aren't so bad -- the U. S. is improving," Mr. Stephenson said. "The world is weak overall but the U. S. was the first to start turning down economically and it will be the first to start turning up."

The big pop in the greenback sparked steep declines in other commodity prices as well. Silver performed the worst yesterday, falling 10% to US$12.84, bringing its loss over the past month to 33%.

The slump in commodity prices took its toll on Canadian resource equities, as both energy and material stocks were hammered. Oil giant En-Cana Corp. fell $3.06, or 4.2%, to $70.04 a share as the energy sector fell to its lowest level since early April.

The broad materials sector, where mining and metals stocks reside, has now lost a quarter of its value since the beginning of July.

"The whole commodity play is over right now," said port-folio manager Terry Shaunessy, of Calgary-based Shaunessy Investment Counsel.

That includes oil, which slipped below US$113 a barrel yesterday in New York trading. Crude prices are set for a retreat to between US$75 to US$80 a barrel as global demand slows and speculator dollars flow from the commodity, Mr. Shaunessy said.

"It's a broad change of sentiment that commodities aren't a one-way ticket up," Stonegate's Mr. Summers said. "They hit a peak and they started to retreat and as more and more investors who got into commodities start to see that you could actually lose money buying these things, they've pushed prices down even further. This is probably a longer-term thing."

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