- A 'Gold Rush' is underway, spurred by a falling U.S. dollar and central bank buying

- Western Canadian hard coking coal prices are expected to move higher in Asian markets in JFY2010

TORONTO, Nov. 30 /CNW/ - After easing in September, Scotiabank's Commodity Price Index, which measures price trends in 32 of Canada's major exports, rallied back strongly in October, rising 6.8 per cent month-over-month (m/m). The All Items Index has advanced by 11.4 per cent from its cyclical low in April, with all sub-components rising in October. Recent weakness in the U.S. dollar, particularly against the euro, has continued to boost commodity prices into November, with investors attracted to hard assets such as gold, silver and copper.

Oil & Gas

According to the report, the Oil & Gas Index led the gain in overall commodity prices in October (+20.1 per cent m/m).

"Canadian natural gas export prices rallied modestly in October, lifting drilling activity, though new game-changing technology has lowered the North American industry cost curve and will quicken the supply response and points to lower trend prices ahead," said Patricia Mohr, Vice-President, Economics and Commodity Market Specialist at Scotiabank. "While U.S. gas-in-storage continued to build through mid-November and is at record levels, traders have bid up prices, recognizing that even the lowest-cost of the new natural gas shale basins cannot be economically developed at recent low prices.

"In my view, the North American natural gas industry needs to take steps to bolster demand - a marked change from expectations of tight North American supplies several years ago," continued Ms. Mohr.

Turning to oil, light and medium/heavy crude oil in Edmonton and Hardisty, Alberta and propane prices in Edmonton and Sarnia leapt last month. However, U.S. petroleum demand has slowed in October and November, after a noticeable improvement in the late summer and early autumn.

"This likely reflects mild U.S. weather at the beginning of the heating season in November - checking any gains in distillate demand - as well as U.S. economic indicators, which remain mixed," said Ms. Mohr.

Metals & Minerals

The Metal & Mineral Index also posted a strong gain in October (+3.0 per cent m/m).

Spot gold prices touched a new all-time record high over US$1,195 per ounce on November 26 - the day after the U.S. dollar fell to a fifteen-month low against the euro (US$1.51).

"While news of financial restructuring at Dubai World has temporarily bolstered the U.S. dollar in late November, the dollar is likely to resume its decline and move irregularly lower in 2010, sending gold higher," commented Ms. Mohr.

LME copper prices also climbed from US$2.81 per pound in September to US$2.85 in October, rising to a near-term peak of US$3.15 on November 23. While prices have since edged down, copper remains exceptionally lucrative at US$3.06 in late November, yielding a profit margin of 58 per cent over average world breakeven costs.

China has massively restocked copper in 2009, taking advantage of bargain prices in early 2009, and now holds about 800,000 tonnes, of which 200,000 tonnes are held by the Strategic Reserve Bureau. China's copper imports fell by 40 per cent m/m in October, but were still at normal levels compared with 2007-08, and prices were little impacted. The decline in the trade-weighted U.S. dollar continues to attract both Chinese and global investor interest into copper and Beijing and Chinese investors are expected to be willing holders of a large part of the inventory recently built up. Global hedge funds still believe there is good value in commodities as an asset class.

"Spot prices for hard coking coal in international markets at US$165 per tonne have climbed above the US$129 term contract prices negotiated last April for premium-grade hard coking coal sold by Australia to Japan and other Asian markets for JFY2009," said Ms. Mohr. "This points to a price increase for premium-grade hard coking coal sold by Western Canadian producers to Asian buyers, when contracts are re-negotiated for JFY2010 - possibly from today's US$128 to US$165."

Canadian sales volumes have been better-than-expected in 2009. For the first time this year, world steel production climbed above a year ago in September & October, led by this year's stronger output in China and the beginning of a recovery in Japan.

Forest Products

The Forest Products Index strengthened markedly in October (+3.1 per cent m/m).

"Newsprint prices are beginning to pull up rapidly from levels below average cash costs for North American mills," said Ms. Mohr. "Tight world supplies also boosted NBSK pulp prices to US$800 per tonne in the United States in October (an eleven-month high) and to US$830 in November, encouraging the re-start of some Canadian pulp mills. A stronger yen against the U.S. dollar is also allowing B.C. 'J-grade' lumber producers to boost prices in Japan - good news for Canada's hard-pressed forest products industry."

Agriculture

Finally, the Agricultural Index posted a slight 0.8 per cent m/m gain, with seasonally stronger wheat, barley and canola prices.

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