Gold Falls,Global markets declined in light volumes on Wednesday

Global markets declined in light volumes on Wednesday, as the price of gold fell and a report showed eurozone banks were hoarding cash from the European Central Bank instead of recirculating it through loans.

In Toronto, the benchmark S&P/TSX composite index fell 198.26 points, or 1.66%, to 11,728.41. Nine of the 10 sub-indexes declined, led by materials, down 4.22%, and energy, which fell 1.62%.

The price of crude oil fell US$1.98 to US$99.36 a barrel as investors were reassured that even if Iran did block the Strait of Hormuz to oil shipments as it has threatened, the situation would not last long enough to cause real shortages. The price of gold dropped for the fifth straight session - its longest slump since October 2009 - closing at US$1,562.90 an ounce, a loss of US$31.30. It has fallen in 10 of the last 12 sessions. "As a hiding place, it served its purpose," Bob Decker, a money manager at Aurion Capital in Toronto, said of gold. "As people look to the new year with a little more optimism with regard to the U.S. economy, maybe they're taking profits in their winning trades."

Profit-taking - and getting the house in order as the year ends - explained much of the declines on the markets, which came back from the Christmas holiday on Tuesday and in Canada on Wednesday.

"Volume goes light and really the only things that are left are the hedge funds making sure that they're in good shape for year-end and a lot of them have to sell to cover their losses," John Kinsey, portfolio manager at Caldwell Securities, said.

"The other part of it is the windowdressing," he said. "This is the most important quarter for window-dressing because it's obviously the end of the year for most mutual funds and other corporations and so they all sell their losers and that puts pressure on the market."

The Canadian dollar fell 33 basis points to US97.64¢ on Wednesday as the U.S. dollar advanced.

Also a factor on Wednesday were reports that eurozone banks were sitting on cash from the ECB. "If the eurozone banks are too afraid to lend, that does not bode well for future growth in the region," Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, told Bloomberg. "The banks are not borrowing from the ECB in order to spur lending. It's to shore up their own balance sheets. That could lead to a credit contraction in the eurozone."

The Dow Jones industrial average fell 139.94 points, or 1.14%, to 12,151.41 and the Nasdaq composite slipped 35.22 points, or 1.34%, to 2,589.98. Canada's junior Venture exchange dropped 18.60 points, or 1.27%, to 1,451.08.

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