Investor interest in physically-backed metal exchange traded funds (ETFs) is intensifying. With that in mind, providers are lining up to launch new ones. But what impact would such fund have on the price of their underlying metals?
The proposed new ETFs will buy actual metal, which may further strain the tight supply created by China’s insatiable demand. Andrea Hotter and Rhiannon Hoyle for The Wall Street Journal report that ETF Securities is planning physically-backed base metal ETFs that would own things like aluminum, copper, lead, nickel, tin or zinc. While the fund will be listed in London, any impact it has on the price of base metals may be felt elsewhere. Other ETF providers may follow suit with their own ETFs, too. [What Copper ETFs Say About the Economy.]
One analyst recently forecast that a base metal ETF could send the price of copper as much as 20% higher.
Most physically-backed ETFs in the United States own precious metals; the market has yet to see a physically-backed base metal ETF. Investors who want to play the price of copper have the option of equity ETFs that track mining companies, such as First Trust ISE Copper (NASDAQ: CU) and Global X Copper Miners (NYSEArca: COPX). [New ETF Providers May Change the Industry.]
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.