Thanks to the strong dollar, commodity prices have been pretty
depressed over the past few months. It also doesn't help that
many are looking for a slowdown in China, a key market for
This is especially true in the base metal market, as China is
easily the biggest consumer of copper (and other industrial
metals) in the world. So, when this important country is
experiencing sluggish growth-and when the dollar is strong-it can
be a rough period for copper investors.
This has been the case for much of 2013, as these two
situations have both been in play, driving the price of copper
lower. In fact, the main exchange traded way to play the metal,
iPath DJ-UBS Copper TR Sub Index ETN (
has lost about 16% YTD, underscoring the deep downward trend in
the copper market (also read
Copper Mining ETFs Head-to-Head
Yet, despite this slump, some believe that there is reason to
be optimistic about copper investing going forward, as evidenced
by recent trading in the space. In Thursday's session, JJC added
about 2.1%, thanks to some fresh catalysts in the market.
Goldman Sachs recently gave
a more bullish short-term outlook for the metal. The investment
company said that they expect an improvement in sentiment about
demand to help cause a rebound over the next three months, a
situation that could help JJC continue to bounce off of its
Domestic data also helped to push the red metal higher in
Thursday trading, as solid figures on the housing and jobs front
added to the short term bull case for the metal. New home sales
showed relatively low inventories, while jobless claims were
rather low suggesting more demand for a variety of consumer goods
in the future.
Let's also not forget that some old-fashioned short-covering
also played a big role in today's gains for copper as well. "When
you consider that copper's fallen over 20%, it's not hard to see
a short covering rally,"
said Ira Epstein
, director of the Ira Epstein division at the Linn Group (read
Time to Sell This Commodity ETF?
Yet even with this bullish day, the trend for copper remains
decidedly negative for the long term. Key emerging markets are
failing to grow at robust rates, so extra demand is unlikely to
come from beyond U.S. shores.
Further, pretty much every currency is weakening against the
dollar, so this could add to the bearish case for copper
investing over the long haul. This is especially true if Japan
continues with its massive easing program, or if the ECB or BOE
engage in some easing measures of their own in order to boost
their struggling economies.
Either way, this looks to be a temporary positive blip on
copper's radar, investors should expect the metal to trend lower
over the next few months. While the move was on solid volume, it
wasn't nearly enough for copper to break out above longer-term
moving averages (also read
the Key to International ETF Investing
Instead, the metal remains depressed in a downtrend, and we
expect it to stay there for quite some time. That is why we are
maintaining our Zacks ETF Rank of 5 or 'Strong Sell' on JJC-and
thus copper in general-as we are looking for more weakness ahead
in this commodity ETF.
How to invest going forward
So if investors are still long copper, now could be a great
time to get out of the weak space, or a good time to consider
shorting the product. For a different, more positive, play on
commodities, investors could consider the precious metals market
While these commodity
have also struggled, some are still seeing solid consensus
outlooks. This is particularly the case in the white metal
market, as ETFs playing platinum, palladium, and silver, have
held up better than copper in the YTD time frame (see
Time to Buy this Precious Metal ETF?
Fortunately there are several options in this market allowing
investors to buy up any of the individual metals (
) or all three in a basket with
. While these are by no means immune to global trends, we think
that any of them could be better positioned than copper in the
near term and be poised to rebound heading into May.
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Author is long PPLT
IPATH-DJ-A COPR (JJC): ETF Research Reports
ETFS-PALLADIUM (PALL): ETF Research Reports
ETFS-PLATINUM (PPLT): ETF Research Reports
ISHARS-SLVR TR (SLV): ETF Research Reports
ETFS-WHITE METL (WITE): ETF Research Reports
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