Four Factors Influencing Base Metal ETFs

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

Metal prices and exchange traded funds (ETFs) have been on a roller coaster ride lately. Regardless of performance, stories about the dollar, China’s demand and homebuilding reports have put metals firmly on center stage.

Don Dion for The Street notes that several factors play into performance of industrial and base metals:

  • Speed and extraction of the metal in the production and mining process.
  • Individual, company or sovereign inventory levels; low levels stoke demand, high levels depress it.
  • The value of the dollar; a strong dollar tends to decrease demand, a weak dollar improves it.
  • China, China, China. The rapidly expanding country has been on a metals buying binge for awhile now.

As commodities, metals can be fickle and sensitive to shifting conditions, so it’s key to have your strategy in place before you buy, be prepared to act and watch the trend lines to spot entry and exit opportunities. Equity ETFs might be appealing for investors who want a fund that’s less sensitive to day-to-day price movements. If you’d like exposure that tracks a little closer to the spot price, dig into some of the metals funds that hold futures contracts.

  • PowerShares DB Base Metals Fund (NYSEARCA:DBB)

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

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

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

Disclosure: Tom Lydon’s clients own shares of XME.