Gold could test $1,300 US and commodities will remain strongly bid in 2010 as the U.S. dollar continues to weaken, says Scotiabank commodities specialist Patricia Mohr.
Strength in commodities was evident in October as prices recovered from their September swoon to rally 6.8%, according to Scotiabank's monthly commodity-price index.
The gains were driven by the surging oil-and-natural-gas index, which was up 20.1% from the month before as West Texas Intermediate crude jumped to $75.71 US a barrel from $69.54 US in September. Natural gas has more than doubled from its low of $2.51 US per thousand cubic feet in early September to a high of $5.19 US in late November, before falling back in recent trading sessions.
Fears that the U.S. dollar could find its footing and pull the rug out from 2009's run in commodity prices -- with Scotiabank's all-items index up 11.4% from its cyclical low in April -- are likely unfounded, Mohr said.
Her outlook hinges on the weakness of the U.S. dollar, which rallied briefly on fears of financial contagion spreading from heavily indebted Dubai World, but has since fallen back near the 15-month low it reached against the euro on Nov. 25.
"We think the Dubai issue is probably just a blip,"Mohr said. "We do expect the U.S. dollar to move erratically lower at least over the next six to 12 months."
As a result, gold -- seen as a hedge against inflation and falling currencies -- will soon climb to a new record of $1,200 US "and may test the $1,300 mark."
A falling dollar will be supportive for all commodity prices, and explains why copper has remained firm above $3 US a pound despite a reprieve from Chinese stockpiling, she said. "It shows that people would rather hold copper than U.S. Treasuries. It's a hedge against the U.S. dollar," Mohr said.
