Toronto Stock Exchange Rally continues, but it won’t last says

The stock market rally that began this week with the biggest single day gain so far this year showed no signs of ending today, May 9. Fuelled by volume increases in all but one of the sub-groups including gold and silver, the 300 composite index posted its third straight advance before closing up 26.03 points at 3464.00.

Analysts cite a number of reasons, including signs that the economy may be cooling off, a slight drop in interest rates and the U.S. treasury’s quarterly sale of notes and bonds, for the mini rally.

But will it last? Not necessarily, according to Marc Meagher, chief economist at Merrill Lynch Canada Inc. who says recent advances in volumes won’t change the economic outlook.

“We tend to look for a bottoming out of the stock market later this year,” said Meagher who expects rising bond yields to draw investors away from riskier equities this summer.

While some observers say interest rates may have peaked, Meaher expects the growth of business investment to slow through the next year. He is also anticipating a recession by the fourth quarter.

As gold continued to hover around the US$370-per-oz. level, closing at US$370.30 on the second London fix, the gold silver index moved up 259.37 points to 6302.47. Not surprisingly, producers LAC Minerals, up 37 cents to $12.50; Corona Corp., also up 37 cents to $8.75; and Placer Dome, up $1 to $19.13, were among the most active issues.

Placer Dome advanced in the face of a strike at its Dome gold mine in Timmins, Ont., which accounted last year for about 12% of the company’s gold output.

In the precious metals sector, American Barrick Resources gained 75 cents before closing at $20.38. Franco-Nevada Mining and sister company Euro-Nevada also benefited from firmer gold price. They gained 75 cents and 37 cents respectively.

Echo Bay Mines was also strong, gaining 62 cents despite its recent decision not to throw good money after bad with respect to the Muscocho Explorations group’s Magino and Magnacon gold mines. Muscocho, however, didn’t fare quite so well. It fell to 2 cents today before climbing back up to end the day at 14 cents.

On the uranium front, producer Rio Algom gave strong indications this week that its two Elliot Lake mines could be shut down much sooner than expected. All of the company’s Elliot Lake employees have been served with layoff notices which means that Rio Algom could begin the layoff process by late August. However, in trading today, the issue gained 38 cents before closing at $19.88.

Still with uranium, Redstone Resources has agreed to purchase a 2% royalty interest in the high- grade Midway deposit in Saskatchewan. The announcement was accompanied by a 5 cents increase in Redstone’s share price. An affiliate of Franco-Nevada, Redstone says the project could generate royalty revenues as early as 1993.

Similar predictions have been made with respect to the Louvicourt Twp. massive sulphide discovery east of Val d’Or, Que., where the search continues for a deposit to match the Aur Resources, Societe Miniere Louvem find.

A stock split combined with some blank drill holes reported from the Louvicourt property has driven the price of Aur shares all the way from a pre-split $14.63 to around $3.50. But analysts who say the current market climate could send Aur shares to below $3, may be jumping to conclusions. Thought by many to be undervalued at current levels, Aur gained 10 cents to close at $3.95.

Among the issues that reached new highs this week was Crown Butte Resources. It ended the day up 62 cents at $10. Also reaching a new high was Metall Mining, up 50 cents at $15.

Reaching new lows this week were Battle Mountain Gold, Bond International, Canamax Resources, Glen Auden Resources, Seabright Exploration, and United Keno Hill.

Finally, the gold producing arm of Inco and partner Golden Knight Resources have upped the reserve estimates at their Casa Berardi, Que., West mine to 3.8 million tons of grade 0.21 oz. from 2.3 million tons of 0.24 oz. Formal production began there on April 10.