July 19, 2010 / 8:35 PM / 9 years ago

CANADA STOCKS-Weakness in gold, banks drags TSX lower

*TSX down 26.18, or 0.23 percent, at 11,543.47

*Materials lead fall as gold price drops

*Focus on Bank of Canada interest rate comments (Updates to close, adds quote)

By Jennifer Kwan

TORONTO, July 19 (Reuters) - Toronto’s main stock index closed lower on Monday as gold prices skidded and as financial shares fell ahead of the Bank of Canada’s interest rate announcement on Tuesday.

Barrick Gold (ABX.TO), the world’s No. 1 gold producer, dropped 1.3 percent to C$43.41, and Goldcorp (G.TO) fell 1.2 percent to C$41.95 as gold prices dropped to near a two-month low. [GOL/] The index’s materials group, of which gold miners are a part, dropped 1.4 percent. [GOL/] [MKTS/GLOB]

“It’s possible there’s going to be a shift in sentiment in the gold market and we may see a fairly major selloff as bullish traders abandon their positions,” said Aaron Fennell, senior market strategist at Lind-Waldock Canada, a division of MF Global Canada Co.

Traders may be abandoning safe-haven gold positions as the anxiety sparked by the European debt crisis subsides, Fennell said, even though there continue to be broader concerns about the pace of economic recovery.

“Right now there’s just not a lot of fear in the market compared to earlier this spring,” he said.

The Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE closed 26.18 points, or 0.23 percent, lower at 11,543.47 with three of its 10 main groups lower.

Financials were down 1 percent, with Royal Bank of Canada (RY.TO) dropping 0.9 percent to C$53.63, and Toronto-Dominion Bank (TD.TO) off 0.7 percent at C$71.49.

Fennell said the Bank of Canada’s interest rate announcement Tuesday was behind the financial sector softness, with markets largely pricing in a 25 basis point increase in its key rate to 0.75 percent. BOCWATCH [CA/POLL]

Higher borrowing costs typically slow the economy, cut into corporate profits and increase the appeal of some competing fixed-income investments.

But more important than the rate hike itself will be the central bank’s accompanying statement, Fennell said.

“It’s all about how that wording lands and if that wording indicates if there are future interest rate hikes coming down the pipe. That’s the unknown. That’s the uncertainty we’re facing,” he said. ($1=$1.06 Canadian) (Reporting by Jennifer Kwan; editing by Peter Galloway)

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