Solid gold in the shape of Japan's Mount FujiYURIKO NAKAO
So much for gold as a haven. The precious metal fell on Monday and dragged down Canada's benchmark index in mid-afternoon trading, striking an interesting contrast with the more moderate declines of major U.S. indexes.
The S&P/TSX composite index fell as much as 340 points, or 2.8 per cent, to 12,047. By comparison, the S&P 500 was down just 1.3 per cent.
Materials were by far the biggest laggards, tumbling 4.4 per cent and marking the sharpest one-day retreat since early August. Gold fell to $1,804 (U.S.) an ounce, down about $52 or nearly $100 an ounce below its record high. However, gold producers fell even harder, with Goldcorp Inc. down 4.9 per cent and Kinross Gold Corp. down 4.8 per cent.
According to Bloomberg News, the reversal might be explained by margin calls received by investors, who have been forced to liquidate gold positions to cover equity losses. It has certainly been a rough day elsewhere: The Euro Stoxx 50 index fell 3.8 per cent and Japan's Nikkei 225 fell 2.3 per cent.
Even though materials were the weakest elements within the Canadian index, the declines were actually broad. Energy stocks fell 2.8 per cent and financials fell 2.2 per cent. Even defensive telecom services fell 0.8 per cent.
The decline in gold comes as investors flock to the U.S. dollar for safety. The U.S. dollar index rose to 77.4, its highest level since February. Gold is generally traded in U.S. dollars, so a rise in the value of the dollar can send the price of gold lower.
Still, other typical havens failed to rally: Yields on the U.S. 10-year and 2-year bonds rose slightly, as bond prices fell.
David Berman