Canada Stocks Fall as Gold Miners Slump Following Fed Rally

Canadian stocks fell from a two-year high, as gold producers and financial stocks slid following the U.S. Federal Reserve’s decision yesterday to unexpectedly maintain the pace of its bond buying program.

Barrick Gold Corp. dropped 2.7 percent even as precious metals prices rallied. Manulife Financial Corp. and Sun Life Financial Inc. lost more than 1.2 percent as the threat of depressed yields weighed on the insurers’ investment portfolios. Catamaran Corp. advanced 2.9 percent after Cantor Fitzgerald LP said the stock’s 9 percent slide yesterday represents a buying opportunity.

The Standard & Poor’s/TSX Index fell 4.62 points, or less than 0.1 percent, to 12,926.78 at 4 p.m. in Toronto, trimming an earlier decline of as much as 0.3 percent. The drop halted a four-day rally that left the gauge at its highest level since July 2011. Trading volume was 7 percent above the 30-day average.

“People had their fun yesterday, but at some point that tapering is going to start,” Gareth Watson, vice president of investment management and research at Richardson GMP Ltd., said in a phone interview from Toronto. His firm oversees C$15 billion ($14.6 billion). “Tapering was just postponed, it wasn’t canceled.”

The benchmark Canadian equity gauge soared yesterday after the U.S. Federal Reserve said it will “await more evidence” for sustained economic recovery before reducing its $85 billion in monthly bond buying. The central bank stimulus has helped fuel a global rally in equities.

Insurers Slump

Yields on government bonds in the U.S. and Canada plunged yesterday after the Fed suggested short-term borrowing rates could remain near zero even if U.S. unemployment falls below 6.5 percent. The threat of cuts to the bond purchases had pushed the yield on 10-year U.S. Treasury notes to a two-year high.

Financial firms dropped 0.2 percent for a second day of declines, led lower by insurers. Manulife fell 2.4 percent to C$17.16 and Sun Life Financial lost 1.2 percent to C$32.88. Insurers invest in bonds to back future obligations to policyholders and low yields can pressure profits.

Materials producers sank 1.6 percent, following the biggest rally in six weeks yesterday after gold surged the most in two years. While the metal continued its advance today, an index of gold producers slumped 2.7 percent.

Investors are “likely hesitant because they don’t have a lot of conviction in the longer-term sustainability of higher gold prices,” Watson said.

Gold Miners

Nineteen of 24 members in the S&P/TSX Gold Index retreated after each advanced at least 1.3 percent yesterday. Barrick Gold, the world’s largest producer, dropped 2.7 percent to C$19.94. Novagold Resources Inc. plunged 7 percent to C$2.67.

Catamaran, a provider of pharmacy benefits management, gained 2.9 percent to C$53.44. Cantor Fitzgerald LP analyst Justin Kew called the worst slide since May “overly punitive.” Walgreen Co., one of the company’s main customers, said late Sept. 17 it would switch employees into a private insurance exchange in 2014.

Health-care companies rallied 3.4 percent as a group for the biggest gain in the S&P/TSX. Valeant Pharmaceuticals International Inc. jumped 3.7 percent to a record C$108.92.

Niko Resources Ltd. jumped 8.7 percent to C$4.12, snapping a three-day slide as energy companies climbed. The Calgary-based oil and gas explorer lost 9.1 percent during the losing streak.

“The material sector moved very strongly yesterday, and I think energy is catching up to that,” Youssef Zohny, portfolio manager at Richardson GMP in Vancouver, said in a phone interview.

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