Canada Gold Stocks Rebound as Fed Speculation Spurs Volatility

  • Raw-materials jump 15% in October, best in the S&P/TSX
  • Gold attractive as China growth slows, Fed holds off rate hike

Canada’s gold producers have been the biggest beneficiaries of the recent volatility in global markets amid speculation the Federal Reserve will hold off this year on raising interest rates.

Raw-materials producers are the best-performing group in the benchmark Canadian equity gauge in October, led by a rally among mining companies. Gold jumped to a three-month high, rebounding from a five-year low in July. Gold is a more attractive investment in times of low rates as the metal doesn’t pay interest.

The Standard & Poor’s/TSX Composite Index rose 30.60 points, or 0.2 percent, to 13,875.33 at 4 p.m. in Toronto, halting a two-day retreat. The benchmark Canadian equity gauge is down 5.2 percent for the year, the poorest showing among 24 countries except for Singapore and Greece.

Gold has climbed after global stocks capped the worst quarterly performance since 2011 amid rising concern that a slowdown in China is accelerating. Canadian stocks climbed 4.7 percent last week, the most since December, as commodities and emerging markets rebounded amid a drop in the dollar. Raw-materials producers have jumped 15 percent in October, the biggest monthly advance since January.

Gold futures advanced 1.2 percent to $1,179.80 an ounce in New York, and is up more than 5 percent this month, on track for the biggest rise since January. Chinese data from imports to factory gate deflation has indicated the weakness in the economy is persisting. In the U.S., reports today showed retail sales rose less than forecast and wholesale prices dropped, posing a problem for the Fed as it looks for signs inflation is moving toward its target.

The Fed declined to raise interest rates in September, and the chance it will wait until at least 2016 has risen to 64.3 percent, according to data compiled by Bloomberg based on futures.

Barrick Gold Corp. added 8.9 percent and Goldcorp Inc. increased 8.8 percent to lead gold producers higher. Suncor Energy Inc. rose 1.1 percent and Encana Corp. climbed 2.8 percent as energy stocks advanced.

Despite the recent rally, energy and raw-materials producers remain the worst-performing industries in the S&P/TSX this year, giving Canadian equities the third-worst performance among developed markets.

Prices for Canadian stocks remain expensive relative to global peers. The MSCI All-Country World Index, a measure of developed and developing markets, currently trades at about 17.1 times earnings. The index’s valuation dropped to as low as about 16 at the end of September, the lowest since October 2014. By contrast, the price-to-earnings ratio of the S&P/TSX sits at 20.1, after falling to as low as 18.9 in September.

Valeant Pharmaceuticals International Inc., the third-largest stock in the S&P/TSX by market capitalization, jumped 5.6 percent for the fifth advance in six sessions. The drugmaker tumbled 22 percent in September, the most since 2007, as U.S. lawmakers scrutinized drug pricing policies.

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