Filed Under: ,
Tickers in this Article: JJC, CU, DBB, ECH, PPLT, SLV, PALL, GDX
Gold and silver seem to be getting most of the attention in the metals complex from investors these days. As worries about inflation and massive budget deficits are creeping into investors' minds, people have been flocking to the precious minerals, sending respective prices advancing. Even platinum is substantially higher, with the ETFS Physical Platinum Shares (NYSE:PPLT) up about $20 since its inception in January. While gold has a place in almost every portfolio as uncorrelated asset class, the industrial metals may be the better choice for long-term profits, as the world begins to improve its infrastructure and crave more modern conveniences. And more recently, copper is emerging as the king of them all.

IN PICTURES: Learn To Invest In 10 Steps

The Global Rally
Just as the global crisis laid waste to assets of all types, copper also saw its prices plummet during the Great Recession. But many economic reports indicate that things are beginning to move in positive directions, and copper has exploded. Last year, copper prices averaged just over $5,000 per ton, and now a ton will fetch between $7,000-7,500. Spurred by investors' growing risk appetite due to a stabilizing position for Greece, and confidence in growth prospects in Chinese and emerging market infrastructure, the outlook for the orange metal is growing.

Inventories in Asian markets, which are at some of their lowest levels in 12 months, need to be replenished. Member countries of the Organization for Economic Cooperation and Development are beginning to recover from recession, and in the medium- to long-term, global copper demand is simply out pacing supply. As all this pent-up demand will only increase prices. Copper prices recently settled at their highest point since July, 2008 on the COMEX division of the New York Mercantile Exchange.

The Copper Plays
Unlike silver or even palladium, for which investors can use bullion-backed ETFs, such as the iShares Silver Trust (NYSE:SLV) or ETFS Physical Palladium Shares (NYSE:PALL), Copper investors aren't so lucky. Although, it's probably a matter of time before we see a copper bullion-backed ETF, investors do have ways to play the global copper rally via various means.

Investors wanting to participate in the direct price of copper have a few choices that use futures contracts to achieve this goal. The iPath DJ-UBS Copper Sub-Index ETN (NYSE:JJC) is currently the only direct play on the price of copper, and has rallied right along with the growing demand. The note does add a level of credit risk as it is a debt obligation of Barclays (NYSE:BCS). A better way to play the overall industrial metal complex maybe with the PowerShares DB Base Metals (NYSE:DBB). The fund is evenly split between copper, zinc and aluminum, and will benefit from the overall need for these commodities. Analysts predict that zinc prices will hit around $2,750 per ton in 2011, about $700 higher than today's prices, as after two years worth of surpluses it moves to a deficit.

Just as gold investors can gain additional leverage by investing in gold miners via Market Vectors Gold Miners ETF (NYSE:GDX), copper investors now have ability to do so as well. The recently-launched First Trust ISE Global Copper Index (NYSE:CU) follows 27 different copper-based miners. While the fund only has $3 million in assets and trades at a very low volume, things will pick as investors look for more commodity exposure outside the CFTC's reach. The fund charges 0.70% in expenses.

Chile recently reported a trade surplus, north of $2.1 billion in January, the country's biggest since March of 2008. As the nation's largest export, the Chilean economy is heavily tied to the price of the metal, and being used as a back door play into the copper market. The iShares MSCI Chile ETF (NYSE:ECH) provides exposure to the Latin American nation, which in of itself a great long-term play. (For related reading, take a look at Southern Copper Shining.)

The Bottom Line
The long term trend for the metal is up, as emerging markets' demand, caused by infrastructure spending and modernization, is increasing exponentially. Investors wanting to participate in the trend should position their portfolios accordingly, using the previously-mentioned exchange traded funds.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center