TSX gets boost from Fed rate statement

Wed Jan 25, 2012 5:06pm EST
 
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By Jennifer Kwan

TORONTO (Reuters) - The TSX rose sharply on Wednesday after the U.S. Federal Reserve said, in a bid to boost the economy, that it was unlikely to raise interest rates before late 2014.

That put a fire under heavyweight gold miners such as Barrick Gold (ABX.TO: Quote), up 5.8 percent at C$48.60, and Goldcorp (G.TO: Quote), ahead 6.4 percent at C$47.71, as the price of gold soared 2.5 percent on the prospect of continued low U.S. rates. <GOL/> The index's materials sector, which includes gold miners, climbed 4.5 percent.

Low interest rates tend to boost gold prices as the metal is traditionally seen as a hedge against inflation, said Bob Gorman, chief portfolio strategist at TD Waterhouse.

"If short rates are going to stay low for a long time that means interest rates in real terms, net of inflation, are going to be negative. That's a very good environment for inflation hedges like gold," Gorman said.

"You saw gold, which had been off earlier in the day, turn around."

Also higher were energy heavyweights Encana (ECA.TO: Quote), up nearly 10 percent at C$20.75, and Suncor Energy (SU.TO: Quote), which climbed 1 percent to C$34.43.

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE ended up 143.97 points, or 1.16 percent, at 12,539.21. Six of the index's 10 main sectors were higher.

The Federal Reserve, in a historic step that it has touted as an effort toward greater transparency, also announced an official inflation target of 2 percent, and for the first time published individual policymakers' forecasts for the federal funds rate.   Continued...