The S&P/TSX composite index plunged 332.71 points to 12,004.88 in its biggest one-day tumble since last June and the lowest close since mid-November.
In addition to the pressure on oil and industrial metals, gold prices deepened a sell-off that started last week, falling to its lowest levels in over two years. The June contract on the New York Mercantile Exchange closed down $140.30 at US$1,361.10 an ounce, its lowest close since Feb. 11, 2011 and came on top of a $63 drop on Friday.
"I think you’re getting some panic selling right now," said Frank Fantozzi, CEO of Planned Financial Services, a wealth management firm in New York.
"People who have been holding on to gold expecting a rebound are now thinking, 'I better get out.'"
The commodity-sensitive Canadian dollar fell off more than a cent, down 1.12 cents to 97.52 cents US.
China's economy grew by 7.7 per cent over a year earlier, down from the previous quarter’s 7.9 per cent. That fell short of many private sector forecasts that growth in the world’s second-largest economy would accelerate slightly to eight per cent.
"We’ve been getting the 7.5 figure from Chinese policy-makers (and) I think the markets kind of prevailing notion was that if they’re saying 7.5, it will likely be eight per cent," said Craig Fehr, Canadian markets specialist at Edward Jones in St. Louis.
"So the fact that we’re kind of splitting the difference here is a little disappointing to the market, no question."
Signs of slowing growth also punished U.S. indexes as the Dow industrials lost 265.86 points to 14,599.2, the Nasdaq declined 78.46 points to 3,216.49 while the S&P 500 index was down 36.49 points to 1,552.36.
China has been a main pillar of support in helping the global economy recover from the recession caused by the 2008 financial collapse. Demand from China has helped lift commodity prices and in turn energy and mining stocks on the resource heavy TSX.
The TSX gold sector was down about nine per cent, further punishing a sector that was already down almost 30 per cent year to date.
Several reasons have been cited for the drop in gold prices.
The main reason seems to revolve around speculation that Cyprus may sell a chunk of its reserves to finance its part of its financial rescue. Though that may not materialize, it has been enough to prompt some investors to think that Spain, Italy and other weak European countries might also use a gold-selling strategy.
Last week, Goldman Sachs lowered its average gold-price forecast for 2013 to US$1,545 an ounce, a level it took out last Friday.
"We’ve had the Italian election thrown at the market, we’ve had the Cyprus bailout, disappointing economic data and none of it has broken the back of the equity markets, so the fear trade has come off," added Fehr.
"Likewise, inflation continues to be benign. And in a self-fulfilling prophecy, declining commodity prices will only reduce inflation. All of that is basically saying, precious metals is not the place to be."
Some U.S. Federal Reserve officials have also been calling for an early end to the central bank’s bond-buying program. If that happens, it would likely cause U.S. interest rates to rise, resulting in an appreciation of the U.S. dollar. That gives traders another reason to sell gold, since they see the metal as an alternative to holding dollars.
Barrick Gold (TSX:ABX) continued to slide on the TSX. It fell $2.64 or 11.51 per cent to C$20.30 — its lowest level in at least a decade — on heavy volume of 11 million shares. The slide added to a loss of 15.45 per cent last week, which means that Barrick is no longer the world’s largest gold miner by market cap, having been overtaken by Goldcorp Inc. (TSX:G). Goldcorp faded $1.69 to $28.38.
In addition to falling gold at the end of last week, Barrick shares have been hit by a Chilean court decision to suspend its Pascua-Lama mine after indigenous communities complained that the project is threatening their water supply and polluting glaciers.
Elsewhere on the TSX, the Chinese data helped push the May copper contract on the New York Mercantile Exchange down eight cents to US$3.27 a pound, sending the base metals sector 9.7 per cent lower. Sector heavyweight Teck Resources (TSX:TCK.B) dropped $1.99 to C$26.15 while First Quantum Minerals (TSX:FM) lost $2.41 to $15.58.
China has been the world's biggest consumer of copper, which is viewed as an economic bellwether as it is used in so many applications.
The energy sector fell four per cent with the crude contract on the Nymex down $2.58 to US$88.71 a barrel. Canadian Natural Resources (TSX:CNQ) gave back $1.43 to $29.85 while Cenovus Energy (TSX:CVE) lost $1.39 to $29.04.
The industrials sector was also a source of major weakness, down 2.14 per cent with Canadian Pacific Railway (TSX:CP) down $4.18 to $121.43.
Financials were also lower with CIBC (TSX:CM) off $1.14 to $77.02.
The fall on the TSX adds to what is already a lacklustre year on the Toronto market. As of Monday's close, the TSX was down per cent year to date.
The Dow industrials and S&P 500 have been smashing one record after another, and even with Monday's selloff, the Dow is still up 11.4 per cent year to date while the S&P is ahead 8.8 per cent. However, there has been much speculation that the New York markets were ripe for a retracement after rising so far so fast.
The TSX Venture Exchange closed below the 1,000-point threshold, falling 64.36 points or 6.29 per cent, to 958.26.