Gold miners lead the way to solid gain on the TSX, bullion prices surge

TORONTO -- The Toronto stock market was higher Monday as traders picked up beaten-down gold stocks while bullion prices had their biggest one day move upward in more than a year.

The S&P/TSX composite index gained 53.59 points to 12,738.72 on top of four straight weeks of gains as traders also looked towards a busy earnings week for Canadian corporations.

The Canadian dollar was ahead 0.28 of a cent to 96.72 cents US.

U.S. indexes were lacklustre amid an earnings disappointment from McDonald's and some weakness from the housing sector as the Dow Jones industrials slipped 3.61 points to 15,540.13, the Nasdaq was 8.35 points higher to 3,595.97, while the S&P 500 index rose 2.46 points to 1,694.55.

Overall, earnings at U.S. companies have shown more positive surprises than disappointments.

But McDonald's fell short of expectations Monday as the world's biggest fast-food purveyor said second-quarter profit rose to US$1.4 billion, or $1.38 a share, from $1.35 billion, or $1.32 a share, a year earlier. Sales rose two per cent to $7.08 billion. Analysts had expected earnings of $1.40 a share on sales of $7.08 billion. Don Thompson, president and chief executive officer, said he expects the results for the rest of 2013 "to remain challenged" and shares of McDonald's fell 2.6 per cent to $97.64.

In Canada, traders will take in earnings from Canadian National Railway (TSX:CNR) after the close while Canadian Pacific (TSX:CP) reports Wednesday. Analysts expect CN to post earnings per share of $1.63, up from $1.44 a year earlier. CN is expected to report that earnings ex-items came in at $1.62, up from $1.50 a year ago. Revenue is expected to come in at $2.7 billion, rising from $2.54 billion a year ago. In early trading, CN shares shed early gains and slipped 79 cents to $104.76.

On the economic front, existing home sales fell by 1.2 per cent in June to a seasonally adjusted annual rate of 5.08 million but remain near a 3 1/2 year high. Economists had expected a rise of 1.4 per cent.

A lower dollar helped support commodity prices because a weaker greenback makes it less expensive for holders of other currencies to buy oil and metals which are dollar-denominated.

The gold sector continued to claw back some of the steep losses racked up so far this year, with the component up about six per cent while August bullion ran up $43.10 to US$1,336 an ounce, climbing above $1,300 for first time in a month. It was the biggest one-day gain since June 2012.

"Gold stocks have come down so much, and we have a bit of a rally in gold prices and people are starting to move in and say these things got oversold," said Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier.

"I think something like a Goldcorp is sort of implying a price of $800 an ounce, which is way too low. Could it get there? Sure, in a real bear market, but I think in general, the stocks have come down percentage-wise much greater than the bullion."

The TSX global gold sector is still down 41 per cent year to date, but it earlier had been down about 50 per cent, while the price of bullion is only down 23 per cent so far in 2013.

Prices started to decline sharply in late May after Federal Reserve Chairman Ben Bernanke said that the central bank could start tapering its monthly US$85 billion of bond purchases if economic conditions warrant. But prices started to revive after Bernanke said last week that the economy still needs stimulus.

On Monday, Barrick Gold Corp. (TSX:ABX) ran up $1.07 to C$18.23 while Goldcorp Inc. (TSX:G) improved by $1.59 to $29.93.

The base metals sector was ahead 1.3 per cent while September copper was up five cents to US$3.19 a pound. Teck Resources (TSX:TCK.B) gained 46 cents to C$23.94. Teck is the biggest Canadian mining company to report this week and analysts forecast the Vancouver-based company will post adjusted earnings of 33 cents a share on Thursday, down from 53 cents a year ago.

The energy sector was up a slight 0.12 per cent while the September crude contract on the New York Mercantile Exchange shed early gains and was down $1.36 to US$106.69 a barrel.

But prices have still jumped about 10 per cent this month, underpinned by three weeks of declining U.S. stockpiles. Rising prices have lifted TSX energy stocks and the sector has gained more than five per cent this month. Cenovus Energy (TSX:CVE), which reports earnings Wednesday, climbed 30 cents to C$32.55.

The telecom sector was the biggest decliner, down 1.8 per cent. BCE Inc. (TSX:BCE) 85 cents lower to $42.44 while Rogers Communications (TSX:RCI.B) fell 88 cents to $41.20. Rogers posts its quarterly earnings on Wednesday.

In other resource sector earnings, gold miner Agnico-Eagle Mines and gas giant Encana (TSX:ECA) report on Wednesday, while Husky Energy (TSX:HSE) will post its results Thursday.

Outside of the resource sectors, grocer Loblaw Cos. Ltd. (TSX:L) reports results Wednesday.

In other corporate news, Intact Financial Corp. (TSX:IFC) says several recent Canadian disasters, including flooding in Alberta, the Lac-Megantic train derailment and a heavy rain storm in the Toronto area, will result in more than $270 million of losses in its second and third quarter. The Toronto-based company is one of Canada's largest property insurers. Its shares gained $1.83 to $59.36.