Agnico-Eagle Mines, Detour Gold, Barrick Gold 52-week Highs Fail to take TSX Higher
The S&P/TSX Composite index (INDEXTSI:OSPTX) was down 161 points, or 1.32 percent in mid-afternoon trading, as financial, healthcare and technology stocks overcame the incredibly muscular performances of gold stocks like Agnico Eagle Mines Ltd (TSE:AEM)(NYSE:AEM), Detour Gold Corporation(TSE:DGC)(OTCMKTS:DRGDF), and Barrick Gold Corp. (TSE:ABX)(NYSE:ABX), all of whom reached 52-week highs today.
U.S. markets fared much worse though, with the Dow Jones Industrial Average registering a loss of 2.1 percent by mid-afternoon, and the NASDAQ down 1.04 percent. The S&P 500 was showing a loss of 1.8 percent, down 33.35 points to 1,818.67, or 40 points lower than it ended the third week of January, when world market deflation triggered pre-emptive moves by China – who printed 400 billion Yuan (US$61 billion) and Mario Draghi at the European Central Bank.
What Options do Central Banks Have to Respond to this Panic?
It is safe to deduce from world markets now trading lower than the level that some central bank response is imminent, though it is difficult to imagine what any central bank could do now to reverse sentiment. Especially the U.S. Federal Reserve, who is facing a ‘damned if they do, damned if they don’t’ scenario, where credibility is harmed if they reverse course on interest rates, but risk to credibility ratchets higher the longer they delay any action. Compounding that problem is the risk of any Fed action have little to no effect on market sentiment, which would certainly catalyze capitulation in markets.
And that leads us to the question, “What is there left that central banks can do to stop the carnage?”. The problem here is that central banks are limited to two avenues: negative interest rates and stimulus.
The net effect of stimulus over time, as we are now learning, is to create longer term instability, and a ‘top heavy’ effect. Just as a ship’s risk of capsizing is increased with more weight above the center of gravity, so too the financial system’s stability is undermined by loading more and more liquidity into the top layer.
The performance of gold in relation to financial stocks and even USD in the current environment is highly suggestive that there is growing conviction among the biggest global players that USD-assets are diminishing as gold assets increase in terms of safe-haven status.
That divergence from previous bear markets that saw gold perform poorly in tandem with the broader market is a very clear signal that something significant has changed.
Whether or not that change takes the form of a major bull market for gold, and an extreme bear market for non-gold stocks, remains to be seen.
|Agnico Eagle Mines Limited||TSE:AEM||50.49||4.02||8.65%||49.40||1,483,614|
|Detour Gold Corporation||TSE:DGC||21.16||1.56||7.96%||21.00||1,476,208|
|Barrick Gold Corporation||TSE:ABX||16.98||0.87||5.40%||17.64||7,618,448|
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