GOLD SELL-OFF SENDS TSX TUMBLING.

The Toronto stock market closed sharply lower Wednesday in a broad-based selloff led by the gold sector.

The S&P/TSX composite index dropped 134.47 points to 12,744.11 as traders wondered if an impressive rally has run out of steam despite a strong reading on U.S. retail sales.

Some analysts suggested that the sharp drop also reflected changing market sentiment where investors are moving out of commodity-based markets like the TSX in favour of more broad-based indexes like those in the U.S.

“Money flows are showing a continuation of flows into the U.S. asset classes and not necessarily commodity driven asset classes,” said Sid Mokhtari, a market technician at CIBC World Markets.

The Canadian dollar was down US0.11¢ to US97.34¢.

New York indexes registered minor gains and the Dow industrials registered a seventh, straight record-high close after the U.S. Commerce Department reported that February retail sales rose by 1.1%. It was the fastest pace in five months.

The Dow Jones industrials rose 5.22 points to 14,455.28. The Nasdaq was up 2.8 points to 3,245.12 while the S&P 500 index edged up 2.04 points to 1,554.52.

The solid increase in retail sales is encouraging because it shows that Americans kept spending despite a payroll tax increase that has lowered take-home pay this year for most workers.

U.S. markets have been on a tear since the start of 2013 amid a positive run of fourth-quarter earnings news and data showing an improving housing sector and job gains.

“One thing to add is we have seen earnings keep up with the market so although the markets have moved up, the valuation has not become stretched,” said Jeff Bradacs, portfolio manager at Manulife Asset Management. “And I think that is one area where investors see the market goes up a lot and think it’s getting more expensive, but we’ve actually seen it kind of keep in line with earnings growth, which has been positive in the U.S.”

The Dow industrials have jumped about 10% year to date. Buying enthusiasm has been muted in Canada and with Wednesday’s loss, the TSX is still up about 2.5%.

Bradacs points out that the TSX is a different market than New York as it is heavily weighted by energy and gold companies.

“And with golds, if you’re bullish on the economies out there, it’s tough to be bullish on gold unless you believe... (in) very stellar growth that is going to lead to higher inflation, which is difficult at this stage given the slack in the economy and high unemployment,” he said.