TSX flat as gold prices plunge

The Toronto Stock Exchange eked out a small gain Wednesday as the selloff in gold continued for a second day.

The S&P/TSX composite index, with its heavy weighting in gold mining shares, closed up 5.48 points at 12,343.81 after  as December bullion plunged by $104 US an ounce to close in New York at $1,757.30 an ounce. That was its biggest one-day decline since March 2008. 

It had crossed above $1,900 on Monday.

Investors had fled to gold over the last few weeks as stock markets turned volatile on worries that the U.S. could slip back into recession and the European debt crisis.

'People are realizing that gold may not be a good long term investment.' —Kate Warne, Canadian markets specialist at Edward Jones

"Investors decided that the markets are far too volatile and they don't know what's going on with the global economy and have been rushing into gold," said Kate Warne, Canadian markets specialist at Edward Jones in St. Louis.

"I think that, unfortunately, that is less of a safe haven than many think," Warne said.

As financial markets begin to calm down, it's no surprise that "people are realizing that gold may not be a good long term investment." 

American markets saw a late session surge, as traders responded to a report showing strong U.S. durable goods orders but were also cautious ahead of Friday's speech by Federal Reserve chairman Ben Bernanke.

Some investors hope that the U.S. central bank chief will announce more stimulus for the economy amid fear that it's in danger of slipping into recession.

But analysts warn that those hopes for good news from Bernanke's speech may be inflated.

"I am concerned that we could see a disappointing reaction on Friday," Warne said.

"What he's likely to do is repeat the list of actions the Fed could take and basically say, we stand ready to act if needed but we're not doing anything right now and we've already said we're going to keep interest rates low."

The Dow Jones industrial average ended up 143.95 points, or 1.29 per cent, to 11,320.71, the Nasdaq composite index added 21.63 points, or 0.88 per cent, to 2,467.69, and the S&P 500 index gained 15.25 points, or 1.31 per cent, to 1,177.60.

Orders for durable goods that are expected to last at least three years jumped four per cent in July, much better than the 2.2 per cent increase that economists had expected. Excluding transportation goods, U.S. durable goods orders rose 0.7 per cent.

But the news wasn't all positive: a key category that tracks business investment plans dropped 1.5 per cent, the biggest drop in six months. That suggests U.S. businesses are pulling back on spending.

Crude closes lower

The Canadian dollar rose 0.15 of a cent to 101.36 cents US as other data showed economic uncertainty is weighing on Canadian consumers. The Conference Board of Canada's consumer confidence index fell 6.6 points in August, the fourth consecutive monthly decline.

The Ottawa-based economic forecaster said its index of Canadian consumer confidence fell to 74.7, the lowest since July 2009.

Worries about slowing economic conditions and the European government debt crisis have punished markets this summer, leaving the TSX more than 14 per cent below its highs of the year from early March.

But the TSX and the Dow both racked up impressive gains in the 300-point range Tuesday on hopes that Bernanke will signal new action to kick start the struggling U.S. economy.

The October crude contract on the New York Mercantile Exchange closed at $85.16 US a barrel, down 28 cents,  despite the fact that  U.S. oil inventories fell by 2.21 million barrels against expectation of a rise of two million. It has gained about three dollars over the past two sessions.

European markets advanced as fresh data indicated that businesses are already preparing for potential troubles.

Germany's closely watched Ifo index of business optimism for August fell more than expected in another negative signal about Europe's largest economy. The index fell to 108.7 from 112.9 in July. Market analysts had expected a smaller drop to 111.0.

London's FTSE 100 index closed up 1.5 per cent, Frankfurt's DAX gained 2.7 per cent and the Paris CAC 40 finished with a 1.8 per cent gain.