After recording a losing month in March (-1.4%), the TD Commodity Price Index (TDCI) in U.S. dollars has surged by nearly 4% in the first half of April. Prices for base metals and precious metals have turned in blockbuster showings, while the price of crude oil has reached a new record high. Even natural gas prices, which almost single-handedly dragged down the TDCI in both January and February, have been showing renewed signs of life over the past few weeks. Only agricultural and forest product prices have failed to participate in the rally.

Interestingly, improving fundamentals do not appear to be behind much of the most recent wave of buying. Indeed, inventories of base metals, while still low, have been grinding higher in recent months. In the case of crude, stocks have climbed to 8-year highs. Speculative activity appears to have taken the helm of late, spurred by either heightened geopolitical concerns (i.e., oil and gold) or merely cashing in on strong upward momentum (base metals). In light of the fact that the activities of speculators are erratic in nature, we are now even more steadfast in our view that a correction in crude oil and base metal prices in the order of 20% is in store for later this year. The major catalyst for this pull back is likely to emerge on the demand side, when U.S. economic growth shows signs of slackening by summer’s end. In the meantime, we don’t rule out further speculative activity driving prices even higher.

Derek Burleton, AVP & Senior Economist
416-982-2514

Priscila Kalevar, Economist
416-982-2555