Gold and other commodities took a big tumble Monday following data that showed much weaker than expected economic growth in China, sending the benchmark index of the Toronto Stock Exchange to its biggest one-day loss in 10 months.
By the close of trading, the S&P/TSX composite index had slumped 332.71 points, or 2.7 per cent, to 12,004.88. The materials group, which includes gold stocks, plunged 7.4 per cent.
Gold futures tumbled $140.40 US an ounce to settle at $1,360.40. That’s a two-year low for the precious metal and the biggest one-day drop since 1980.
Gold miners suffered huge declines. Shares of Barrick Gold plunged more than 11 per cent, or $2.64, to $20.30. It was one of the most actively traded stocks on the TSX. Kinross Gold fell 87 cents to $5.54.
“Leveraged hedge funds appear to be forced to sell gold because of margin calls and now stock margin calls,” said Mark Grant, managing director with Southwest Securities.
The gold selloff began last week on speculation that the central bank in Cyprus would dump some or all of its $600-million US in gold. That sparked worries that other troubled European economies might sell some of their gold reserves too.
“This is panic, this isn’t organized at all,” said Phil Streible, a senior commodities broker at RJ O’Brien Futures. “If you look at Italy or Spain….if they start liquidating, that’s when you get serious movements.”
Two major American investment banks also downgraded their outlook for gold last week.
Silver plunged more than 11 per cent, down $3.12 to $23.21 an ounce.
China announced Monday that its economy grew by 7.7 per cent in the first quarter. While that’s much better than most countries, it surprised analysts who’d expected China’s GDP would pick up steam to eight per cent.
“The GDP figure will no doubt prompt 2013 growth forecasts for China to be trimmed over the coming days,” said BMO Capital Markets senior economist Benjamin Reitzes.
China is the biggest driver of commodity prices, so any sign of weakness leads to quick selloffs in the resource sector.
Copper and aluminum prices also hit new year lows Monday. Teck Resources, a major producer of copper, plunged $1.99 to $26.15.
Crude oil futures also slumped on the China news, falling $2.58 to settle at $88.71 a barrel. That’s a four-month low for crude. The TSX energy group tumbled 3.3 per cent.
The Dow Jones industrial average had its worst day of the year, falling 265.86 points to close at 14,599.20. The S&P 500 dropped 36.49 points to 1,552.36. The Nasdaq composite index slid 78 points to 3,216.
The Canadian dollar, which often moves in line with commodity prices, slid 1.12 cents to close at 97.52 cents US.