MINING FINANCE / INVESTMENT

New gold rush may soon see the yellow metal test US$1,300 - Scotiabank

A surge in gold and silver prices could send gold to the $1,300/oz level, Scotiabank's Pat Mohr predicts.

RENO, NV - 

Scotiabank economist Patricia Mohr forecast Monday that gold may test the US$1,300 during a time she referred to as a new gold rush.

Mohr noted Scotiabank's Metal & Mineral Index showed "broad-based strength in base metals, a surge in gold & silver prices and slight gains in sulphur and uranium prices more than offset somewhat softer steel-alloy prices (molybdenum and cobalt)."

Although LME copper prices have edge down from their near-term peak of US$3.15 on November 23, Mohr suggested, "copper remains exceptionally lucrative at $US3.06 per pound in late November , yielding a profit margin of 58% over average world break-even costs (including depreciation)."

She noted copper prices have been barely impacted by the announcement of lower Chinese imports for three reasons: "1) Beijing and Chinese investors/fabricators are expected to be ‘willing' holders of these [copper stocks] in 2010; underlying demand for copper in China is expected to advance by 23% in 2009 and at least 8% in 2010, assuming greater availability of scrap next year. Copper scrap is still in short supply; 2) global hedge funds and investors still believe there is good value in commodities as an asset class-particularly vis-à-vis low yielding U.S. Treasury Securities; and 3) investment funds expect huge re-stocking of basic materials, once the G7 economies fully recover after massive liquidation late last year."

"The decline in the trade-weighted U.S. dollar also continues to boost both Chinese and global investor interest into copper," Mohr said.

In her analysis, Mohr said market conditions for potash "remain very quiet, with buyers waiting for negotiation of a price contract between BPC [Belarusian Potash Company] and China for 2010 (a development which should re-start shipments)."

Meanwhile spot uranium prices retreated to US$43 in late November, which Mohr said was pressured by a U.S. Department of Energy Secretarial Determination that "the barter of surplus UF6 inventories held by the DOE to pay for an environmental cleanup would have no adverse material impact on the U.S. domestic uranium industry (though it already did)."

Finally, Mohr forecast that western Canadian hard coking coal prices are expected to move higher in Asian markets in JFY2010.