TSX dragged down by falling gold prices

The S&P/TSX composite index extended its losses on Friday, weighed down by a plunge in the price of gold.
Trader Fred Demarco works on the floor of the New York Stock Exchange on Thursday, when stocks tumbled, extending losses for a fourth straight session. (Brendan McDermid/Reuters )

The S&P/TSX composite index extended its losses on Friday, weighed down by a plunge in the price of gold.

Widely-traded December gold closed down $101.90 at $1,639.80 US per ounce, its first close below $1,700 since early August.

The benchmark Toronto stock index ended down 99.6 points at 11,462.9.

Also weighing on Toronto was the fact that oil continued to be under selling pressure on Friday. The price for oil for November delivery was down 66 cents at $79.85 US per barrel.

"People are just afraid that demand is going to be affected in a negative way and that's pulling prices back down," said Tom Bentz, an analyst at BNP Paribas Commodity Futures.

Friday's plunge meant the price of gold has fallen by nearly 10 per cent this week, and is far from its record high of $1,876 reached earlier this month

Drop is a 'vicious circle'

Some investors were forced to sell gold to raise money for margin calls as stock and commodity prices continued to tumble amid fear that another recession is increasingly likely.

"It's a vicious circle ... and there are no investors stepping up to buy the gold because they realize that gold is like any other commodity," said Azim Hajee, senior trader at MF Capital Canada.

Late Thursday, finance ministers from the G20 countries pledged at a meeting in Washington, D.C., to "take all necessary actions to preserve the stability of the banking systems and financial markets" and to make sure banks have enough money for their day-to-day expenses.

However, some watchers said the statement won't amount to much without action.


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"The statement from the G20 last night may have taken the edge off the current bitter market sentiment but the reassurances from the finance ministers lack substance," said Jane Foley of Rabobank. "Until politicians back their actions with … respect to moving closer to a solution to the eurozone debt crisis, markets will continue to worry about a messy and painful outcome from the eurozone debt crisis."

Canadian Finance Minister Jim Flaherty said European leaders need to boost the size of a fund set aside to inject cash into banks in the region in the event of a financial crisis.

U.S. stocks higher

On Wall Street, the Dow Jones industrial average was up 37.65 points at 10,771.48, while the Nasdaq was up 27.56 points at 2,483.23.

The Canadian dollar, which dropped more than two cents on Thursday as investors sought the safety of the U.S. dollar, was off 0.19 of a cent to 97.14 cents US.

Finance Minister Jim Flaherty said Thursday that Europe needs to take decisive action to deal with a financial crisis that could push Greece to default. (Alex Grimm/Reuters)

Among European stock exchanges, France's CAC-40 gained 1 per cent while the DAX in Germany rose 0.6 per cent. The FTSE 100 index of British shares finished 0.5 per cent higher.

Earlier, in Asian trading, Hong Kong's Hang Seng fell 1.4 per cent to 17,668.83 after losing nearly five per cent the day before. Australia's S&P/ASX 200 index fell 1.6 per cent to 3,903.20.

South Korean shares took a large hit, with the Kospi tumbling 5.7 per cent to 1,697.44. Mainland China's Shanghai composite index lost 0.4 per cent to 2,433.16. Japan's market was closed for a holiday.

With files from The Canadian Press and The Associated Press