Tumbling gold prices drag down TSX

Markets had started off positive after the U.S. Commerce Department said the American economy grew at a slightly faster pace in the final three months of last year. It expanded at a three per cent annual rate in the October-December quarter, the fastest pace since the spring of 2010. It exceeded the previous estimate of 2.8% and it was better than the third-quarter’s 1.8% growth rate.

Buyers were further encouraged after a widely-watched index of manufacturing activity in the U.S. Midwest breezed past expectations. The Chicago Purchasing Managers index came in at 64, up from 60.2 in January.

The TSX gold sector fell more than 3.5% as April bullion tumbled $77.10 to US$1,711.30 an ounce as traders felt the bullish data reduced the risk of inflation. That is because the U.S. Federal Reserve likely won’t feel the need to embark on another round of economic stimulus known quantitative easing, involving the printing of money to buy up government bonds.

“I think the fact that they’re not going to have to come in with QE3 (further quantitative easing) means there is good economic growth in the U.S., means they’re not going to ram money into the process” thereby stoking inflation and raising gold prices, said Chris King, portfolio manager at Morgan, Meighen and Associates.

“So the fact the economy is doing OK means they won’t need (QE3), there’s less inflationary pressure on gold.”

Goldcorp Inc. (TSX:G) declined $1.80 to $47.97 while Barrick Gold Corp. (TSX:ABX) lost $1.91 to $47.34.

The strong U.S. data helped push the Canadian dollar up 0.6 of a cent to 101.06 cents US, its highest level since last September. The dollar came down from a high of 101.58 cents amid the sharp drop in gold prices and a decline in copper prices. Appetite for riskier currencies such as the loonie was also supported by a move by the European Central Bank to make C529.5 billion in low-interest loans to banks, the second round of a massive credit infusion.

The first offer of three-year, low-interest credit to banks on Dec. 21 has been credited with easing fears of a financial meltdown in the eurozone due to lack of confidence with governments with too much debt and too little growth.

Banks used some of the money from the first round of loans to buy government bonds, which in turn lowered borrowing costs for hard-pressed governments.

New York indexes also weakened after U.S. Federal Reserve Chairman Ben Bernanke spoke to a congressional panel and made it appear less likely that the Fed will embark on more stimulus through buying more bonds.

The Dow Jones industrial average closed 53.05 points lower to 12,952.07 a day after the blue chip index closed above 13,000 for the first time since May 2008.

The Nasdaq composite index gave back 19.87 points to 2,966.89. The index earlier topped the 3,000 level for the first time since December, 2000 after Apple’s (NASDAQ:AAPL) market capitalization topped $500 billion amid blowout holiday-season sales of iPhones and iPads. And, more recently, Apple has raised investors’ hopes that it might institute a dividend. The company’s market capitalization was a bit over US$506 billion the shares rose $7.03 or 1.31% to US$542.44.

The S&P 500 index edged 6.5 points lower to 1,365.68.

The weakness in indexes comes at a point where analysts have been questioning whether markets are due for a slight correction after bounding ahead practically non-stop since the recent lows of last October. The TSX is still up almost six per cent year to date.

“I wouldn’t be surprised if a little bit of the air comes out of the markets,” added King.

“There’s nothing wrong with consolidating this position here.”

Oil closed higher despite data from the U.S. Energy Information Administration which said that crude supplies rose by 4.2 million barrels last week, far higher than the one million barrel increase that analysts expected.

Crude gained 52 cents to US$107.07 a barrel and the energy sector lost 0.68%.

Prices had already dropped more than US$3 over the last two sessions but crude is still ending February up almost nine per cent this month, primarily over worries about Iran’s nuclear program and the possibility of supply disruptions.

Canadian Natural Resources (TSX:CNQ) dropped 76 cents to $36.73.

The metals and mining sector was down one per cent while copper prices also lost early gains and closed down four cents to US$3.88 a pound. Signs of an improving U.S. economy and hopes that China will loosen lending requirements to encourage growth have boosted copper prices about 2.5% during February. Teck Resources (TSX:TCK.B) lost $1.24 to $39.62.

Industrials were also a weight as Canadian Pacific Railway (TSX:CP) lost 83 cents to $74.14.

Torstar Corp. (TSX:TS.B), a newspaper and book publisher with growing digital businesses, reported a 77% jump in profits in the latest quarter to $64.3 million or 81 cents a share. But it added the advertising business remains soft because of the sluggish economy.

Quarterly revenues rose to $425.3 million from $417.5 million and its shares gained 37 cents to $9.72.

Miranda Technologies Inc. (TSX:MT) said fourth-quarter profits came in at $3.5 million, up from $3.3 million a year ago, as the company was affected by a foreign exchange loss. Its shares dropped 70 cents to $10.30.