Canadian Stocks Reverse Slide as Gold Jumps on Fed Caution

  • Yellen says central bankers to `proceed cautiously' on rates
  • Amaya jumps most in 2 months as CEO takes leave amid probe

Canadian stocks wiped out losses, as gold producers jumped with the price of the metal after Federal Reserve Chair Janet Yellen sounded caution on raising interest rates amid heightened risks in the global economy.

The Standard & Poor’s/TSX Composite Index rose 0.3 percent to 13,426.23 at 4 p.m. in Toronto, erasing a decline of as much as 0.9 percent that occurred before Yellen’s speech. The Canadian benchmark equity gauge is on track for a second straight month of gains, something it hasn’t accomplished since February 2015. The S&P/TSX is up 3.2 percent this year and is one of the best-performing developed markets in the world. 

Yellen’s speech to the Economic Club of New York pointed to global growth, oil prices and China as risks while making a case for slow changes. Fed officials this month revised down their median estimate for the number of rate increases that will be warranted this year to two hikes, from four projected in December. Traders are now pricing in a zero percent chance of a rate increase in April. The probability doesn’t rise above 50 percent until November.

“Yellen has cloaked herself in dovish wings, which at least for April, keeps the Fed on hold, and is consistent with our view that a hike in June could be followed by another long pause,” Avery Shenfeld, chief economist at CIBC World Markets, said in a note to clients. “Rate hikes will be tempered by spillovers from still-tame global growth and its downside pressure on U.S. growth and inflation.”

Gold producers jumped 4.2 percent, the most in almost two weeks, as the precious metal rallied while the U.S. dollar retreated. Gold is seen as a value asset in a low-inflation environment. Raw-materials producers led gains while energy stocks pared earlier losses as six of 10 industries advanced.

The broader gauge now trades at 21.4 times earnings, about 15 percent more expensive than the valuation of the U.S. equity benchmark, the Standard & Poor’s 500 Index, data compiled by Bloomberg show. 

Energy producers lost 0.8 percent, paring an earlier loss of as much as 2.1 percent. Oil in New York declined for a fourth day, dropping 2.8 percent to $38.28 a barrel, ahead of a government report Wednesday forecast to show increasing U.S. crude stockpiles have kept supplies at an eight-decade high. Oil tumbled to a 12-year low last month before rebounding on speculation the global surplus will ease.

Amaya Inc. jumped 13 percent, the most in two months, after Chairman and Chief Executive Officer David Baazov said he was taking an indefinite paid leave of absence amid an insider trading investigation at the world’s largest online poker company. Quebec regulators last week laid 23 charges related to its probe, including five against Baazov.

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