Vruksha Financial Planners: COMMODITY PRICE REPORT-TD Economics

COMMODITY PRICES TO PICK UP STEAM IN 2012

The key risk facing the global economy and commodity markets is the evolving debt crisis in Europe.
It is quite possible that things will get significantly worse in the near term, posing a considerable risk
to the downside vis-à-vis the price projections shown on pages 2 and 3. Our base case assumption
is that Europe’s political leaders will respond to the crisis and take sufficient action to prevent a major
financial market meltdown. The risks of setbacks along the path to reform will extend through the
medium term, but at least fears of a worst case scenario will ease in 2012.

Assuming the Europe story falls off the front pages of the paper next year, prospects for commodity
prices are generally quite positive. While annual average prices for most commodities show a
decline in 2012, they mask the underlying strength that we expect to see in these markets going
forward. Indeed, we expect prices to trough in the current quarter or the first quarter of next year,
and then resume their upward trek as risk appetite begins to grow again.

Increased demand for commodities will stem from several factors. First, investor demand is likely
to strengthen next year. The low interest rate environment is here to stay – at least through 2012.
The U.S. Federal Reserve has committed to keep the Fed Funds rate at the current ultra-low 0.0%-
0.25% range until mid-2013 and will continue carrying out its program known as “operation twist”,
keeping pressure on long-term rates as well. Meanwhile, the European Central Bank cut interest
rates earlier this month, and there is likely more easing in the pipeline. Low yields on debt instruments
will continue to drive investors into alternative assets such as commodities

Moreover, despite the increasing likelihood of a recession in Europe, economic growth for the world
as a whole is projected to come in at just over 3% in 2012. While this is a lackluster pace of growth,
economic activity in emerging markets will remain healthy. In fact, despite growing fears of a dramatic
slowdown in China’s growth rate, we expect that Chinese authorities will manage to pull off a
soft landing, with the rate of expansion forecast to remain at 8% in 2012. This still-robust pace of
growth will translate into strong demand from one of the world’s largest commodity consumers, putting
a floor under prices. In the U.S. – another key resource consumer – economic growth is likely to
remain in positive territory, albeit at a moderate pace. As such, we expect demand for commodities
in America to remain steady.

Forecast for 2012

we expect precious metals to be a top performer in 2012, with gold prices heading towards US$2,100.
History shows that easy monetary policy and economic/financial stress are supportive for gold prices – and this environment is likely to persist throughout the next year.

Base metals are also expected fair well, with copper,zinc, aluminum and uranium prices all recording double
digit gains on a Q4/Q4 basis. Of all the metals, copper is the only market that is expected to be in a supply deficit position this year and next; however, most metals prices will be supported by rising demand and modest production growth in 2012. Nickel prices will underperform due to the notable surplus in the market.

The recent uptrend in crude oil prices – due in large part to the geopolitical unrest in the Middle East – is not sustainable given the current global economic environment.While tensions in the Middle East remain an upside risk,we expect prices to slip below US$90 per barrel headinginto 2012, before slowly climbing back up to US$95 per barrel in mid-2012. Meanwhile, natural gas prices will remain below US$5.00 per MMBtu in the coming year as a result of weak demand and abundant inventories.