Toronto Stock Exchange Rate and inflation fears awakening

After five years the raging bull market which has propelled most market indices to record highs, is finally showing distinct signs of aging. A common characteristic of this aging process is the high degree of nervousness which has permeated the market over the past two weeks. At no time was this nervousness more apparent than on Sept 8 when the tse composite plummeted more than 55 pts. Today, the index gave up another 11.19 pts to 3,899.90, marking six straight declining sessions.

The market crash is either signalling the beginning of a bear period or a simple correction phase within a bull market which is going to continue romping well into 1988, analysts argue. Whatever the forecast, investors are facing a reality of intense price volatility.

This week’s sell-off was sparked by fears of increasing interest rates, which tend to make equities unattractive in relation to yields on bonds. The catalyst behind the rate fear was the U.S. Federal Reserve Board which raised its discount rate by half a percentage point to 6%.

In the latest report by the Bank Credit Analyst, the economic forecasting group concludes that there is growing evidence that the “underpinnings of this phase of the bull market — low and falling inflation, high real interest rates and a more stable dollar — may be weakening, particularly as inflation and interest rates rise”. The report continues, saying that a full fledged market collapse could be triggered by a dollar crisis which will force the Fed to raise rates even further.

Golds were also affected by the rate increase. Bullion closed weaker at $457 (US) at the market close. Overall performance saw the gold and silver index decline by 30 pts to 9,843.84 pts — off more than 425 pts from the high of 10,269.16 pts reached just last week.

Placer Dome Inc, which is heading towards one million oz of gold production by the 1990s, was sideways at $26.38. For the day, the issue traded a healthy 214,847 shares valued at $5.7 million. American Barrick Resources was also steady at $31.50. On a pre-split basis, that’s equivalent to $63.

On the base metals front, zinc prices tumbled to 43 cents (US) a lb — off a nickel in just one day. Brunswick Mining & Smelting, the Noranda affiliate which is Canada’s largest zinc miner, dipped to $15.50. Four weeks ago, the company was steady at $18. Copper prices however, are remaining strong at 80 cents (US). Falconbridge Inc traded 261,560 shares valued at $7.1 million today, before closing at $27.50.

Minnova Inc, which is exposed to copper and other base metals, advanced by 30 cents to $31.88 on good volume. The company’s Ansil copper mine is being readied for production by late 1988. The high grade deposit, which has sections up to 20% copper, could be a big money maker for Minnova (see front page story).

Golden Rule Resources continued to set a record pace, as it ventured into uncharted waters. The issue closed at a new high od $8.13 on volume of 682,391 shares. Last week, the issue was trading at $4.50. The buying spree is being sparked by talk of high grade gold grab samples from the Transom Lake property in the La Ronge area of Sask. Although initial impressions appear favourable, considerable work is required to evaluate this play.

Galactic Resources, which has dissappointed some investors due to less than anticipated gold production from the Summitville gold mine, remained unchanged at $15.88. The company holds a 10% stake in T. Boone Pickens Mesa Partnership, which is bidding $6.3 billion (US) for control of Newmont Mining Corp. The offer is being made via Ivanhoe Acquisition Corp, a company controlled by Mesa.

Hayes Resources reacted favourably to a change of management and news of a financing deal. Hayes bounced from under a dollar to $2.65 after American Barrick and DCC Equities, a Ned Goodman company, took down a Hayes offering. Tombill Mines, which is a major shareholder in Hayes, was active at $2.55 for the A share and $2.10 for the B share. Last week Hayes traded at 40 cents whereas Tombill’s A share was quiet at $2.25.