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Commodity Review: Why Dr. Copper Is A Good Thermometer For Your Portfolio

|Includes:CH, Global X Copper Miners ETF (COPX)

Dr. Copper gave investors a wild ride during the first quarter and it's a metal that is found in just about everything you can think of that is either manufactured or built but should you invest in the so-called bellwether for the global economy?

For starters, China is the largest consumer of copper - gobbling up around 40% of global output. This means that copper prices sank when China cuts its growth forecast earlier last month. However, China has since reported that factory activity reached an 11-month high in March while the US manufacturing sector also showed more signs of life. Hence, copper is up about 13.8% since the start of the year with analysts' copper forecasts pointing to higher prices as or should the global economy continue to recover.

On the other hand, housing and real estate and specifically the Chinese real estate sector are major consumers of copper (e.g. copper wiring etc.). This means that if the Chinese real estate sector has a hard landing, demand for copper will also take a big hit. Likewise, copper prices will also fall should the US economic recovery stall.

Either way, investors and traders alike who want to place a bet on copper might want to consider the Global X Copper Miners ETF (NYSEARCA:COPX) which attempts to mimic the performance of the Solactive Global Copper Miners Index - a key performance benchmark for the copper mining industry. COPX's top 20 components include the following stocks, many of which do not trade on major US exchanges, with their YTD returns:

  • Grupo Mexico S.A. de C.V. (Pink: GMBXF) +16.79%
  • Lundin Mining Corporation (TSE: LUN) +13.95
  • Xstrata PLC (LON: XTA) +13.7%
  • Southern Copper (NYSE: SCCO) +1.89%
  • Jiangxi Copper Company Limited (PINK: JIXAY) +9.1%
  • HudBay Minerals (TSE: HBM) +4.24%
  • Vedanta Resources plc (LON: VED) +21.67%
  • Kazakhmys plc (LON: KAZ) -2.21%
  • Antofagasta plc (LON: ANTO) -6.78%
  • First Quantum Minerals Limited (TSE: FM) -1.8%
  • Freeport-McMoRan Copper & Gold (NYSE: FCX) +2.75%
  • KGHM Polska Miedz (PINK: KGHPF) -7.2%
  • Inmet Mining Corporation (TSE: IMN) -17.22%
  • OZ Minerals Limited (ASX: OZL) -3.9%
  • Imperial Metals Corporation (TSE: III) +32.96%
  • Capstone Mining (TSE: CS) -0.7%
  • Ivanhoe Mines (NYSE: IVN) -21.9%
  • Taseko Mines Limited (NYSEAMEX: TGB) +22.34%
  • Park Elektrik Uretim Madencilik Sanayi ve Ticaret AS (Istanbul: PRKME)
  • Northern Dynasty Minerals (NYSEAMEX: NAK) +0%

As for the Global X Copper Miners ETF (COPX) itself, it's up 4.75% since the start of the year, down 35% over the past year and down 6.7% since early 2010.

Finally, another albeit indirect way for investors to bet on copper prices would be to invest in The Aberdeen Chile Fund (NYSEMKT:CH) - a closed-end country fund that invests in Chilean securities. It should be noted that Chilean financial stocks actually account for The Aberdeen Chile Fund's (CH) biggest weighting followed by basic material stocks as the fund is fairly well diversified. Nevertheless and in the mind of many investors, Chile is copper (the country accounts for about 1/3rd of global production) - meaning there will be a tendency for the fund to rise and fall somewhat with copper price as copper tends to have an outsized influence on the Chilean economy, stock market and currency. The Aberdeen Chile Fund (CH) is also up 25% since the start of the year, down 14.7% over the past year and up 1.24% over the past five years.

At the end of the day, investors and traders need to remember that copper can be a volatile commodity. Nevertheless and given that copper got the nickname Dr. Copper because it's such a good gauge for global economic health, it might be a good idea to add the copper ETF or a few copper stocks to your NextCandle.com my portfolio list to act as a thermometer for your investment or trading portfolio.

NOTE: THIS PIECE WAS JUST POSTED ON OUR BLOG AT www.nextcandle.com/blog/2012/04/commodit...

Stocks: COPX, CH