Toronto Stock Exchange Plummeting golds send market into tailspin

Continuing nervousness concerning the strength of the North American economies came to a head today as plunging bullion prices led the tse into a nosedive. Gold gave up another $27 this week as it broke through the $440-mark — considered by many technical analysts to be a bearish psychcological barrier. The composite index, which has been performing dismally, losing ground almost daily during the past two weeks, got pulled into the vortex of sell orders. When the smoke cleared, 57.28 pts had evaporated from the index which closed at 2,988.67 pts.

The gold and silver index was off by more than 448 pts to 5,632.52 pts — a level which is below that attained following the Oct. 19 debacle last year.

Ironically, the latest wave of selling which began earlier this week, was sparked by news that the Federal Reserve Board had lowered the prime lending rate in the U.S. after signs emerged that the economy was slowing down. Such a move, following Black Monday, prompted buying in equities and gold.

The combination of lower-than- expected inflation this year, rumors of a big Newmont Mines gold loan — which would depress bullion prices — and the growing fear that the market bottom is still a long way off, underlie the selloff. Also, economists who study M2 — the sum of currency, bank and chequing accounts — have seen declines during the third and fourth quarters of 1987. Since the 1950s, two consecutive declines in M2 have always been followed by a recessionary period.

To confuse us even more, the inflation school can churn out just as many statistics which point to continued strength in the economy this year. This precise lack of direction, combined with the lessons of Black Monday has spawned a new trading strategy — when in doubt, sell.

Gold equities felt the brunt of this painful trading strategy. American Barrick Resources slid to $22.13 — off $1.62 for the day. For the week, the issue lost $2.37. Franco Nevada, which holds lucrative royalties on Barrick’s Goldstrike and Post deposits in the rich Carlin area of Nevada, probably suffered the least this week, losing 75 cents to $7.25.

The same can’t be said of Agnico- Eagle Mines, which crashed to $15 — off more than $4 for the week. On Jan 12, Agnico was steady at $22. Other casualties include Lac Minerals, off $1 to $10.38 and Placer Dome which gave up $1.25 to $14.

No one seemed to be able to buck the downtrend. Even Inco Ltd., which announced its fifth-best quarter ever. During the last quarter of 1987, Inco racked up earnings of $75 million. The company’s best quarter ever was the first in 1980 when $100 million was made on strong nickel prices. Few investors were inspired by the results as Inco gave up 50 cents to close at $22.50. Pity the poor institutions who snapped up units of Falconbridge Ltd. just three weeks ago at $23.75 each. The nickel miner could be had for $18.38 today.

Cash-rich Hayes Resources has put $17 million on the table to buy control of troubled gold miner SherrGold Inc. (see front page story). Hayes was easier at $1.95 whereas SherrGold was quiet at $1.50. Another company hunting for gold acquisitions is Northgate Exploration which topped up its bank account with $160 million following the sale of its gold-copper mines to Western Mining Corp. late last year. Look for a major purchase this year. Northgate was surprisingly steady at $7.38 — off 37 cents for the day.

Platinum prices are also taking a bashing, sliding to the $460(US)- per-oz range. Madeleine Mines, which is hoping to produce the metal from an open pit mine this year, slipped to $4.45. The 1987 high was over $16.