January 25, 2012 / 1:17 PM / in 6 years

TSX gets boost from Fed rate statement

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), up 5.8 percent at C$48.60, and Goldcorp (G.TO), 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), up nearly 10 percent at C$20.75, and Suncor Energy (SU.TO), 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.

“The glass is half full today. Not half empty,” said Paul Hand, a managing director at RBC Capital Markets.

Research In Motion RIM.TO climbed 8.1 percent to C$16.40 after tumbling in recent sessions because its new chief executive dismissed talk of drastic change at the BlackBerry maker.

RIM’s move higher may have been supported by the presence on RIM’s board of Fairfax Financial CEO Prem Watsa, known as “the Warren Buffett of the North”. Fairfax has become a major RIM shareholder, which may help mollify impatient shareholders disappointed that an insider had been named RIM’s new chief executive.

Financials sank 0.7 percent with Royal Bank of Canada (RY.TO), the country’s biggest bank, down 1 percent at C$53.23.

The banks sold off in response to the Fed statement as they are suffering from the affects of extraordinary low short-term interest rates, Gorman said.

“When that happens their margins are very low so that means it has an adverse impact on profitability,” he said.

Reporting By Jennifer Kwan; editing by Rob Wilson and Peter Galloway

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