ABJ - October 3 - Scotiabank's Commodity Price Index, which measures price trends in 32 of Canada's major exports, fell by 3.3 per cent month over month in August. The All Items Index stayed elevated—only moderately below (-5.2 per cent) last April's near-term peak in commodity prices.

"Financial market concern over Euro-zone debt challenges and the political gridlock in the United States, threatening to undermine steps to bolster the economy, intensified in mid-September," said Patricia Mohr, Vice-President, Economics and Commodity Market Specialist at Scotiabank. "China's economy, of vital importance to global commodity markets, also appears to be slowing, leading to some unwinding of commodity positions by financial institutions."

Expectations that U.S. growth may remain exceptionally slow, with minimal inflation, has likely increased the attractiveness of Treasury bonds, despite very low yields. These developments lifted the U.S. dollar last week, dampening gold and silver prices.

Gold investors were also disappointed that the Federal Reserve Board, at its meeting on September 21, did not announce a third round of Quantitative Easing (QE3), which would have expanded its balance sheet and overall liquidity, and might ultimately have proven inflationary. Spot gold dropped as low as US$1,532.72 per ounce on September 26 in intraday trading—a drop of US$388 from the record US$1,921.15 on September 9, though prices have since rebounded over US$1,600.

The Metal and Mineral Index edged down in August by -0.4 per cent month over month, as moderate declines in base metals and uranium more than offset strength in gold, silver and cobalt.

"Current copper prices at US$3.16 remain quite profitable for mining companies, yielding a 54 per cent profit margin over average world breakeven costs including royalties, depreciation and interest expense, despite the correction," noted Mohr. "Recent surveys on the ground point to soft orders for China's copper fabricators in the fourth quarter, though global supply and demand conditions are expected to remain largely balanced, in fact, in a slight deficit of 30,000 tonnes. Copper prices could well rally back as 2012 unfolds."