Bloomberg News

Canada Stocks Rise as Gold Producers Rally Amid U.S. Debt Debate

October 07, 2013

Canadian stocks rose, following a decline last week, after gold producers rallied as investors sought a store of value amid growing concern that the U.S. could default on its debt.

AuRico Gold Inc. and Osisko Mining Corp. jumped at least 5 percent as all 24 members of a gold index advanced with the price of the precious metal. Allied Nevada Gold Corp. surged 28 percent after saying it reached its production and sales targets for the third quarter. BlackBerry Ltd. (BB) rallied 4.1 percent after a Macquarie Group Ltd. analyst raised his rating on the smartphone maker to the equivalent of a hold amid a report the company was in new takeover discussions.

The Standard & Poor’s/TSX Composite Index (SPTSX) climbed 29.60 points, or 0.2 percent, to 12,788.25 at 4 p.m. in Toronto. The index slipped 0.7 last week and has added 2.9 percent this year. Trading volume was 13 percent lower than the 30-day average.

“It’s textbook, this is what should happen, gold should be going up so the market is responding rationally to this crisis,” said Jeffrey Burchell, co-chief investment officer with Aston Hill Financial Inc. in Toronto. The firm manages about C$7 billion ($6.8 billion). “Every time in the past when they’ve had these crises you have a situation where the market has sold off in advance. This time it hasn’t, the market is acting rationally because everyone knows at some point this is going to get solved.”

Default Threat

President Barack Obama said he would be willing to negotiate with Republicans on fiscal terms if they raised the debt limit by next week and restored government funding.

The U.S. government could default on its debt if lawmakers don’t reach an agreement to raise the borrowing limit by Oct. 17. Economists say failure by the world’s largest borrower to pay its debt will devastate stock markets from Brazil to Zurich and throw the U.S. and world economies into a recession that probably would become a depression.

The benchmark U.S. equity gauge fell more than 11 percent in three days in August 2011 amid a stalemate over the debt limit. The losses were later reversed and the S&P 500 gained 25 percent in the 12 months through August 2012.

In Canada today, building permits tumbled 21.2 percent to C$6.34 billion in August from a revised 21.4 percent gain in July, on a decline in commercial projects such as retail stores and office buildings.

Seven of 10 main industries in the S&P/TSX rose today, with producers of raw materials and technology stocks rising 0.8 percent to lead advances.

Gold Miners

The S&P/TSX Gold Index jumped 2.3 percent, with all 24 members rising. Gold added 1.2 percent in New York for the first gain in three sessions as the U.S. budget impasse stoked demand for the metal as a store of value.

Osisko Mining climbed 7 percent to C$5.35 and AuRico Gold gained 5 percent to C$4.02.

Allied Nevada jumped 28 percent to C$5, the biggest gain since April, after the company said it is on track to meet its 2013 forecasts for gold and silver production. The miner plans to report third-quarter results during the week of Nov. 4.

Rio Alto Mining Ltd. (RIO) added 4.4 percent to C$1.89, snapping a five-day slide, after saying it will meet its forecast for gold output this year.

BlackBerry rallied 4.1 percent to C$8.20, halting a two-day losing streak, after Kevin Smithen, analyst with Macquarie, raised his rating for the stock with a price target of $7. BlackBerry has six buys, 22 holds and 14 sells, according to data compiled by Bloomberg.

New Suitors

Reuters reported on Oct. 4 after the close that BlackBerry was in talks with six firms, including Google Inc. and Cisco Systems Inc. for a potential sale. The company has a conditional deal to sell itself to a group led by Fairfax Financial Holdings Ltd., its largest shareholder, for about $4.7 billion, or $9 a share.

Air Canada soared 4.3 percent to C$4.66. The nation’s largest airline extended a five-year high and has rallied 32 percent in the past five sessions. It said on Oct. 3 that costs for the third quarter and full year will decline more than anticipated. Air Canada has surged 166 percent in 2013 for the best performance in the S&P/TSX.

To contact the reporter on this story: Eric Lam in Toronto at elam87@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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