Investors continue cautious approach

The sharemarket lost ground this week. It has now fallen for five of the past six weeks.

The sharemarket lost ground this week. It has now fallen for five of the past six weeks.

Sharp falls in global commodity prices, particularly gold, saw resource companies take a pounding. For the week, the benchmark S&P/ASX 200 Index lost 81.1 points, or 1.6 per cent, to 4931.9, while the broader All Ordinaries lost 93 points, or 1.9 per cent, to 4923.

Things got off to a poor start when data showed Chinese growth for the first three months of the year was 7.7 per cent, below expectations of 8 per cent. Fixed asset investment and industrial production was weaker than expected, while house prices in China's major cities continued to rise (they have now risen 3.6 per cent year on year).

Market watchers said although the disparity between the real figure and the expected figure was not that large, the response from shareholders suggested many had been expecting a sharp V-shaped recovery for China's economy.

The price of gold fell like an anvil this week. Economists said there were several reasons.

"Just over a week ago it broke through technical support at around the $US1550-an-ounce level, which triggered technical selling," AMP Capital's chief economist Shane Oliver said. "More fundamentally there is no sign of the hyperinflation or $US collapse that 'gold bugs' had expected to follow quantitative easing in the US." We should also remember that gold is part of the commodity complex that has been under pressure since 2011, he said.

And the financial crisis in Europe appeared to have settled a bit, reducing gold's "haven" demand.

But UBS' deputy head of global economics, Paul Donovan, questioned one politician's assessment of conditions in Europe.

"France's finance minister has declared the existential crisis of the euro is over," he said. "While we believe the euro survives, to declare the existential threat over when Cyprus has been forced to impose capital controls seems somewhat odd timing."

The gold price is now about 27 per cent lower than its all-time high of $US1900 an ounce in September 2011.

For the week, Echo Entertainment slipped 21¢ to $3.46 after the casinos operator increased efforts to fend off James Packer's Crown in a battle for wealthy Chinese gamblers in Sydney.

Qantas slipped 3.5¢ to $1.75, after it said delivery of its first Boeing 787 Dreamliner might be delayed by "a couple of months" but reiterated its backing for the aircraft.

Rio Tinto fell $2.58 to $54.32, as the global miner posted a better than expected quarterly iron ore production report. Woodside Petroleum lost $2.30 to $34.10, with the company looking to spend some extra cash in Canada after shelving its Browse project in WA. Harvey Norman gained 16¢ to $2.74, after the electrical and homewares retailer achieved sales growth for the first time in 18 months.

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