A free fall in gold and silver prices this morning has the TSX sinking deep into the red, with steep losses in other commodities as well as a weak tone on Wall Street only adding to the misery.
It was a rude awakening this Monday morning for Canadian investors, whose equity market is dominated by resource names - a sector that's reeling from a weaker-than-expected reading on China's economy today and panic selling in precious metals.
Some of the S&P/TSX composite index's most widely held stocks were incurring significant damage. That included Barrick Gold Corp., down another 9 per cent today after hitting 10-year lows on Friday; Kinross Gold, also down nearly 10 per cent; and Suncor, down 5 per cent after announcing a major deal this morning to sell most of its natural gas assets.
Just past 10 a.m. (ET), the S&P/TSX composite index was down 215 points, or 1.7 per cent, at 12,121; the S&P 500 was down 14 points, or 0.8 per cent, at 1,576; and the Dow Jones industrial average was down 102 points, or 0.6 per cent, at 14,765. Wall Street stocks extended their losses after a report on U.S. homebuilder confidence came in lower than expected for April, sliding to 42 from 44 in March, its third straight monthly decline.
But all eyes really were on precious metals, where gold and silver were showing little sign of recovering from their bludgeoning that started overnight. At the start of North American equity trading, the active June contract in the New York futures market was down $95 (U.S.) an ounce, or 6.3 per cent, at $1,405.30, after dipping as low as $1,385 earlier this morning.
That was its lowest level in more than two years, and the magnitude of the move clearly suggested panic selling after steep losses on Friday had already made market players nervous of holding long positions.
There are a number of reasons why gold has suddenly fallen out of favour. A lot has to do with technical selling as prices keep dropping on the charts to where automatic sell orders reside, known as stop-loss selling. The fall in prices has also prompted margin calls, a demand for additional funds from brokers because of adverse price movement.
Fundamentally, players are worried about central bank sales after European Central Bank President Mario Draghi put pressure on Cyprus last week to sell some of its gold reserves to help fund its bailout. The action has raised concerns that other central banks in countries struggling with debt issues may use gold sitting in vaults as sources of funding. Such a prospect diminishes gold's appeal amid the aggressive central bank quantitative easing measures of the last few years -- which to date didn't ignite the kind of inflation some economists had warned of.
The less liquid silver market, which often moves in sympathy with gold and can be more volatile, is down nearly 10 per cent in New York at $23.75 an ounce. Industrial metals are also much lower, with copper futures down 3.2 per cent at $3.24 per pound.
Those metals such as copper with industrial applications are economically sensitive, and part of the decline was a reaction to news overnight of slowing growth in China. The country announced that its gross domestic product for the first quarter grew 7.7 per cent from a year earlier, significantly short of forecasts of 8 per cent. Similarly, crude oil was down about 2 per cent on the news out of China.
Here's a look at some of stocks moving on news this morning:
Money manager Gluskin Sheff + Associates Inc. is entertaining takeover offers, the Globe and Mail's Tim Kiladze reports. The company has hired investment bankers to explore the possibility of a sale and interested buyers have submitted bids. Shares resumed trading at 1015 a.m. after being halted, and were trading down 1 per cent.
Dish Network Corp., the No. 2 U.S. satellite TV provider, offered to buy Sprint Nextel Corp. for $25.5-billion in cash and stock, a move that could thwart the proposed acquisition of Sprint by Japan’s SoftBank Corp. Sprint shares are up 16 per cent.
Citigroup Inc. reported adjusted earnings of $1.29 a share in the first quarter, beating Street forecasts for $1.17. Shares opened up 2.3 per cent.