Do Metal ETFs Have Stamina to Keep Going?

Includes: DBB, HAP, JJU, LD, XME
by: Tom Lydon

Last year was one long party for metals exchange traded funds [ETFs]. In the wake of China’s monetary tightening announcement, however, you can’t help but wonder if the rally has the legs it needs to keep going.

Hopes for a global economic recovery and inflationary precautions have helped metal shares and ETFs stay in peak performance. Carolyn Cui for The Wall Street Journal reports that while commodity prices rebounded sharply from lows early in 2009, most closed well below records set before the economic crisis began in 2008, illustrating where we really are in the economic recovery.

Demand from emerging economies as well as the catch-up phase for developing economies should help lift up demand and keep it strong. This year should see a continuation of the building efforts of emerging economies, and demand for base metals is likely to get further support as Western manufacturers start to rebuild their inventories.

Last year was a banner one for base metals. Copper, which has many industrial uses, more than doubled, soaring 139%. It ended the year at $3.3275 per pound but still 18% shy of record prices hit in 2008. Lead, which is used in car batteries, also more than doubled to $2,416 a metric ton, followed by zinc, which was up 125%, and aluminum, gaining 50%.

Whether the trend is sustainable is really only a prediction; watch the trend lines for signals of any potential long-term uptrend.

  • SPDR S&P Metals & Mining (NYSEArca: XME)

  • Market Vectors RVE Hard Assets Prod ETF (NYSEArca: HAP)

  • iPath DJ AIG Aluminum TR Sub-Idx ETN (NYSEArca: JJU)

  • iPath DJ AIG Lead TR Sub-Idx ETN (NYSEArca: LD)

  • PowerShares DB Base Metals (NYSEARCA:DBB)

Disclosure: No positions