As the Commodity Futures Trading Commission (CFTC) mulls over position limits for futures-based commodity ETFs, many providers are launching commodity equity funds to help sidestep the issue altogether. (The four types of commodity ETFs).

Cinthia Murphy for Index Universe lays out the facts:

• It’s not a one-to-one relationship. The long-term correlation between equities and futures is good, but not perfect.
• Investing in commodities-linked equities can be more volatile than tracking spot prices of commodities, warns Ed Lopez, product manager for Van Eck. “Any small movement in spot prices can actually affect producers greatly,” he says.
• Futures-based commodity index products may, over time, demonstrate significant tracking error against spot indexes because of the influence of contango, which is when the futures prices is above the expected future spot price.
• Equities are performing better than futures this year. Many investors may be a little skittish of futures while the CFTC officially decides what the limits will be. (How to avoid bubbles).

For more stories about commodities, visit our commodity category.

Some equities-based commodity ETFs:

• ALPS ETF Trusts Jefferies TR/J CRB Global Equity Index Fund (NYSEArca: CRBA)
• Market Vectors Agribusiness (NYSEArca: MOO)
• Market Vectors RVE Hard Assets Producers (NYSEArca: HAP)
  
• SPDR S&P Metals & Mining (NYSEArca: XME)

Coal. China has reduced its supply of coal by clamping down on pollution while demand remains unchanged, which could result in higher prices for the commodity. Now, China will need to import coal to maintain its production and power plants. Coal is the world’s fastest-growing fuel based on consumption. Coal is also a major component in producing steel. (More on coal here).

• Market Vectors Coal ETF (NYSEArca: KOL): up 184.3% since low; up 121.7% year-to-date

Steel. Steel has experienced rising popularity as the global infrastructure sector recovers and automakers increase demand. The Chinese markets and the U.S. dollar weakness has helped prop up the base metals market. (Four ways to play base metals).

• Market Vectors Steel Index ETF Fund (NYSEArca: SLX): up 147.7% since low; up 95.4% year-to-date

Metals & Mining. These funds track indexes made up of the stock of commodity producers. One argument in favor of investing in hard asset equity ETFs is that you may know a little about a particular commodity, but the person running a company involved in mining or producing that commodity is duty-bound to know a whole lot more. Commodity producers can make brilliant business decisions, and they can also benefit when new mines are discovered. They can also cut costs and boost profits. (The benefits of hard assets).

• SPDR S&P Metals & Mining (NYSEArca: XME): up 123.1% since low; up 74.3% year-to-date

Basic Materials. Base metal prices have jumped as demand for the metals increase, more notably from China as the country recovers and hoards metals. Base metals should continue their upward journey as fundamentals in a global recovery strengthen. (More on China’s shopping spree).

• iShares Dow Jones U.S. Basic Materials (NYSEArca: IYM): up 100.9% since low; up 58.5% year-to-date

Copper. Copper prices are at their highest levels in 13 months, thanks to both a drooping dollar and concerns about supply of the metal. Prices have doubled this year, mostly because China stepped up its demand as its economy recovered. Analysts also predict that copper will be the top performer among base metals. (Where copper is going).

• iPath Dow Jones AIG Copper TR Sub Index ETN (NYSEArca: JJC): up 81.3% since low; up 112.7% year-to-date

Commodities have been on a hot streak, but as we’ve learned from recent bubbles, it’s wise to have an exit strategy in the event of a correction. You can read more about strategies here.

For full disclosure, Tom Lydon’s clients own shares of IYM.

Max Chen contributed to this article.

There are various ways to invest in the commodities market, each with its pros and cons, and one way to invest in hard asset ETFs is through the equities market, according to Hard Assets Investor.

“As hard assets, they are the building blocks of world economies, and they can be a building block of a portfolio,” Ed Lopez, marketing director at Van Eck Global, says. Lopez notes that as global economies recover and grow, it’s going to push demand for these commodities higher, putting pressure on prices.

Adam Phillips, director of sales at Van Eck, says that both equity commodity ETFs and physically backed or futures-based ETFs can co-exist in a portfolio and be complementary.

One argument in favor of investing in hard asset equity ETFs is that you may know a little about a particular commodity, but the person running a company involved in mining or producing that commodity is duty-bound to know a whole lot more.

Still, it is important to know that while the underlying hard asset and the company that mines it are correlated to an extent, there some differences:

• Like any other company, these firms can have things go wrong, including  mismanagement, corruption, environmental disasters, labor strikes, lawsuits and more
• Companies also hedge their exposure to commodity price oscillations by using futures contracts to lock in in prices, which means that the company may not benefit if commodity prices rise

However, commodity producers can just as likely make brilliant business decisions, and they can also benefit when new mines are discovered and they can cut costs and boost profits.

Tax-wise, long-term capital gains on equities are set at 15%. (Read more on how ETFs are taxed).

Foster and Phillips say that investors should approach hard asset ETFs as equities, since they have a higher correlation with equities than commodities. “In normal markets, they’ll have a positive correlation with the broader equity markets,” Phillips says.

For more information on commodities, visit our commodity category.

Some related miner ETFs include:

• SPDR S&P Metals & Mining (NYSEArca: XME): up 73.4% year-to-date

• Market Vectors Gold Miners Fund (NYSEArca: GDX) : up 73.4% year-to-date

• Market Vectors Steel Index ETF Fund (NYSEArca: SLX): up 73.4% year-to-date

• Market Vectors RVE Hard Assets Producers Index (NYSEArca: HAP): up 40% year-to-date

• PowerShares Global Coal (NYSEArca: PKOL): up 115% year-to-date

Max Chen and Heather Hayes contributed to this article.

According to David Nadiq for IndexUniverse, investors who are more inclined to invest in commodity ETFs have a choice in what type of ETF they use to get exposure:

Equities. Equity-based commodity ETFs are funds that hold mining companies and other companies involved in the production of various commodities. Be aware that the performance of these companies are not always correlated to their underlying commodity. In the case of coal, steel and other commodities, sometimes equity-based commodity ETFs are the only way to gain exposure to these assets in an ETF. Long-term capital gains rate on equity-based ETFs is 15%, but be sure to consult your tax professional for further guidance.

• SPDR S&P Metals & Mining (NYSEArca: XME): up 73.4% year-to-date

Physical. Physical ETFs hold the actual physical commodity. Precious metals ETF holders would own an interest in a fractional amount of the physical commodity. The small investor may consider physical ETFs over holding the physical commodity because of costs associated with storage of the commodity. Potential investors should also note that profits in bullion-based ETFs are taxed at 28%, but consult your tax professional for advice.

• iShares Silver Trust (NYSEArca: SLV): up 56.1% year-to-date

Futures-based. Most commodities are traded on futures exchanges. A future is a promise to buy, or sell, a commodity for a set price at a set date in the near future. A majority of the future contracts traded on the exchange floor are settled or swapped for cash before the expiration date.

Futures also add a time component to the price: when tomorrow’s cost is higher than today’s, it’s called contango; the inverse called backwardation. Investors should note that some ETFs have blind front-month roll strategies, but most ETFs now buy futures months in advance. None of these ETFs claim to deliver the spot price of the underlying commodity.

Futures-based ETFs are usually reported on K-1 tax forms. The profits are taxed at 60% long-term and 40% short-term capital gains rate. Read more about how ETFs are taxed here, and always consult your tax professional for advice.

• iShares S&P GSCI Commodity-Indexed Trust (NYSEArca: GSG): up 8.1% for the year

Swaps-based. Swaps recently entered the ETF conversation when the popular United States Natural Gas (NYSEArca: UNG) turned to them in order to gain exposure. Generally, ETFs that invest in swaps receive the benchmark performance through the swap. The use of swaps give investors exposure to areas of the market that can be difficult to target. Read more about the benefits of swaps here. When the Commodity Futures Trading Commission (CFTC) announces regulatory changes, swaps could become a part of even more futures-based ETFs.

For more information on commodities, visit our commodity category.

Max Chen contributed to this article.

There are many reasons to buy into a precious metals investment, and ETFs can give the desired  exposure to gold, silver and platinum.

Gold. Gold is the godfather of all the precious metals for various reasons, according to Aryeh Katz for Investopedia:

• Gold is a safe haven and is recognized by almost all governments as being a safe store of value
• Inflationary pressures can be hedged with gold (read more on fighting inflation with ETFs here)
• War and political upheaval have always sent people into gold-hoarding mode; an entire lifetime’s worth of savings can be made portable and stored until it’s needed

Moming Zhou for MarketWatch reports that Jim Rogers recently claimed gold will hit $2,000 per troy ounce within the decade. As long as the U.S. dollar continues to weaken, gold prices could continue to rise because gold priced in dollars will become cheaper for overseas buyers (Read 7 more things you should know about gold here).

• SPDR Gold Trust (NYSEArca: GLD)
• iShares COMEX Gold Trust (NYSEArca: IAU)
• PowerShares DB Gold (NYSEArca: DGL)
• ETFS Physical Swiss Gold Shares (NYSEArca: SGOL)
• Market Vectors Gold Miners (NYSEArca: GDX)
• E-TRACS UBS Bloomberg CMCI Gold ETN (NYSEArca: UBG)

Silver. Silver – the “poor man’s gold” – is also a good way to hedge against inflation, and it benefits from its appeal as both an industrial and precious metal. This means that it can be treated as a safe haven investment, as well as an investment for investors looking to benefit from an uptick in industrial demand. A note of caution:  since silver’s market is smaller than gold’s, it can be more volatile. Silver’s main investment approach is determined by factors such as:

• Silver’s role in photography and film has kept demand high; however, the advent of digital cameras has dented the need for silver
• Middle class population growth in emerging markets is great, and this demand for industrial and electrical supplies puts much more pressure on the silver store
• Silver’s use in batteries, superconductor applications and microcircuit markets is a major source of demand
  

• ETFS Physical Silver Shares (NYSEArca:SIVR)
• iShares Silver Trust (NYSEArca: SLV)
  
• PowerShares DB Silver (NYSEArca: DBS)
• E-TRACS UBS Bloomberg CMCI Silver (NYSEArca: USV)
  

Platinum. Platinum tends to fetch a higher price than gold during routine periods of market and political stability simply because it’s much rarer. Other factors affecting platinums price include:

• The greatest demand for platinum comes from automotive catalysts, which are used to reduce emissions; after this, jewelry accounts for the majority of demand
• Auto sales and production numbers are also determinants of platinum’s price
• Platinum mines are heavily concentrated in two countries: South Africa and Russia; This places much more pressure on the platinum market.

Jeff Nielson for DNA reports that the direction of the precious metals markets are not easy to determine in the short term. The longer the time horizon (and the larger the data stream), the more predictable are the movements of companies, commodities, and overall markets.

Various ETFs that give exposure to precious metals:

• E-TRACS UBS Long Platinum ETN (NYSEArca: PTM)
• iPath Dow Jones AIG Platinum TRSub Index (NYSEArca: PGM)

In addition to specific exposure to metals ETFs, investors can also find broad metal ETFs that hold either the metals themselves, futures contracts or the stock of companies involved in the production of these metals:

• PowerShares Global Gold & Precious Metals (NYSEArca: PSAU)
• SPDR S&P Metals & Mining (NYSEArca: XME)
  
• Emerging Global Shares DJ Emerging Markets Metals & Mining Titans (NYSEArca: EMT)
• PowerShares DB Precious Metals (NYSEArca: DBP)
• iPath Dow Jones AIG Precious Metals TR Sub Index (NYSEArca: JJP)
  

For more stories about precious metals, visit our precious metals category.

For full disclosure, Tom Lydon’s clients own shares of GLD and SLV.

Hard-asset ETFs can be used to both diversify a portfolio as well as protection from both inflation and broader market turmoil, comments Don Dion for TheStreet.

Some hard asset ETFs don’t hold futures or physical commodities. Instead, these funds track indexes made up of the stock of commodity producers. Some broad equity-based, hard-asset ETFs include:

• SPDR S&P Metals & Mining (NYSEArca: XME), currently up 66.8% year-to-date, includes U.S. metals and mining companies. The fund has an expense ratio of 0.35%.
• Market Vectors RVE Hard Assets Prod ETF (NYSEArca: HAP), currently up 29.9% year-to-date, this fund seeks to reflect the Rogers-Van Eck Hard Assets Producers Index, which is often quoted as the definitive commodity equities benchmark. HAP also holds water and renewable energy components in its portfolio.

iPath offers both broad and specific exposure to hard assets with a line of exchange traded notes (ETNs) that track the futures contracts and Treasuries. Potential investors in these ETNs should be aware of regulatory actions that the Commodity Futures Trading Commission (CFTC) may impose.

• iPath DJ AIG Ind Metals TR Sub-Idx ETN (NYSEArca: JJM): up 45.6% year-to-date; includes a basket of commodities.
• iPath DJ AIG Tin TR Sub-Idx ETN (NYSEArca: JJT): up 42.3% year-to-date
• iPath DJ AIG Platinum TR Sub-Idx ETN (NYSEArca: PGM): up 32.5% year-to-date
• iPath DJ AIG Lead TR Sub-Idx ETN (NYSEArca: LD): up 114.7% year-to-date
• iPath DJ AIG Aluminum TR Sub-Idx ETN (NYSEArca: JJU): up 10.5% year-to-date

ETF Securities has successfully launched global physical-asset ETFs:

• ETFS Silver Trust (NYSEArca: SIVR): up 9.8% in the last month
• ETFS Gold Trust (NYSEArca: SGOL): down 1.3% in the last week

Larry Swedroe, principal and director at Research at BAM advisor Services and at Research for Buckingham Family of Financial Services, says that purchasing commodities is a way to protect against supply shocks and event risks that could negatively influence a portfolio of stocks and bonds, according to iStockAnalyst.

Swedroe also argues that position limits on commodity ETFs are “purely politically driven,” which could create conditions of more volatility. The ultimate outcome, he says, will result in the value of contracts being driven higher and people having to pay more for insurance.

For more information on commodities, visit our commodity category.

Max Chen contributed to this article.

Steel prices have begun to decline and many think this trend will continue.  According to Robert Guy Matthews of The Wall Street Journal, steelmakers may have overproduced the metal and supply will outpace demand before long.

The massive stimulus packages that were rolled out by governments, especially China, made the demand for steel soar, resulting in steelmakers mass producing the metal.  In fact, China’s inventory of steel is more than 11 million tons, and this build up was a major reason that demand for steel rose.  As stimulus packages begin to slow down, the demand for steel could likely follow.

It isn’t all bad for the commodity, though.  Thomas Ludwig, chief executive of Germany-based steel distribution group Klockner & Co., which sells and processes steel throughout Europe and North America, has said that although real demand for steel is low, it could rise for the rest of the year and steel makers need to be more disciplined to prevent a chokehold on a recovery.

• Market Vectors Steel ETF (NYSEArca: SLX): up 80.7% year-to-date.

For more stories on steel, visit our steel category.

Kevin Grewal contributed to this article.

Investors are worried about the prospect of inflation, along with a weakening dollar. As a result, they’re snapping up gold as a hedge and sending prices past the all-important $1,000 psychological barrier, reports Julianne Pepitone for CNN Money.

The last time gold traded above the mark was in February, when investors grew concerned that the nation’s big banks were going to be nationalized. Before that, gold topped the $1,000-mark in March 2008, hitting a record $1,014.

There are several ways to play the gold move (and be sure to note the differences between them):

• SPDR Gold Shares (GLD): up 12.6% year-to-date

• iShares COMEX Gold Trust (IAU): up 12.6% year-to-date

• PowerShares DB Gold (DGL): up 11.4% year-to-date

In addition to the ETFs that hold gold bullion or gold futures, the gold mining ETF could also be worth a look. Many of these companies are benefiting from gold’s higher cost, and since it can be challenging to pick one or two strong companies, a gold miner ETF can be a great diversified way to get some exposure.

Analysts caution against getting carried away, though. Reuters notes. This is especially true since no one knows how long this rally could actually last. We agree: to keep your emotions and excitement out of the equation, be sure to enter any gold positions with a strategy, and have an exit point if the $1,000 mark doesn’t stock over the long haul.

• Market Vectors Gold Miners ETF (GDX): up 32.9% year-to-date

For more stories about gold, visit our gold category.

Much of the recent spike in commodity prices has been driven by a weaker greenback. But David Bogoslaw for BusinessWeek asks whether now is the time to bet on commodities. He notes that it’s going to take some examination of economic signals, both good and bad, to answer the question:

• China has been a big driver of global commodities demand for the last decade. China is said to be scaling back on its consumption of commodities as they rein in their stimulus, which has sparked fears that this could depress prices.
• Renewed demand for cars, thanks to the very successful “Cash for Clunkers” program, as well as a recovery in housing, may help sustain demand for certain commodities domestically.
• The direction of the dollar is a key driver. If the dollar continues to weaken, as some feel it might, this could make commodities more affordable for overseas buyers.
• Mining strikes could deplete inventories. One mine that accounts for a third of South Africa’s platinum production may go on strike this week; a strike in Canada is being blamed for the spike in nickel costs.

Agriculture is still a popular segment of the commodity market. Even if China backs off on spending, the country’s citizens could still demand food as much as they were before, one analyst notes. Meanwhile, soybeans are poised to hit a record $20 a bushel as stockpiles in the United States dwindle, report Claire Leow and Susan Li for Bloomberg.

The fracas over futures-based commodity ETFs continues as iShares S&P GSCI Commodity Index Trust (GSG) said it would stop issuing new shares once it hit 55.9 million. Currently, there are 52.5 million shares, reports Ian Salisbury for Dow Jones Newswires.

GSG joins a growing line of funds that have said they’ll stop issuing new shares until the CFTC officially rules on what kinds of caps it would impose on these funds.

Whether it’s time to get into commodities or not, watch the trend lines for signals. Our strategy utilizes the 200-day moving average when looking for opportunities and potential long-term uptrends. Read more on our strategy here.

The Labor Department reported that new claims for unemployment benefits jumped unexpectedly to 576,000 last week, a jump from the 561,000 witnessed last week and much higher than the 550,000 anticipated by economists.  Although the pace of layoffs has slowed, unemployment remains high and continues to hinder the economic recovery.

Transportation officials are getting ready to wind down the “Cash for Clunkers” program as the program is on pace to exhaust its $3 billion in funds by early September.  The announcement of when the program will end may be made as early as tomorrow as officials discuss how the program should end and how to deal with a backlog of rebate payments to dealers.

But to replace “Cash for Clunkers” could be another government program that would offer rebates to consumers who purchase new energy-efficient appliances. The program would give as much as $200 back to consumers, Marketplace reports.

On the earnings front:

• Sears Holding Corp. (SHLD), missed expectations and reported a loss of $0.17/share, excluding one-time costs, analysts expected a profit of $0.32/share.  Revenues at the company declined 10% on a stronger dollar and same-store declines.
• H J Heinz Co., the maker of ketchup and Ore-Ida French fries, reported earnings of $0.67/share topping Wall Street’s expectations of $0.62/share, despite witnessing a decline in revenues of 4% and a strong dollar.
• In metals and mining, Rio Tinto Group (RTP) announced a decline in profits of 65% as the prices of copper, iron ore and aluminum declined.  The world’s third-largest mining company is faced with mounting debt and is at a standstill in contract negotiations with some Chinese steelmakers.  SPDR S&P Metals & Mining (XME) is up 1.6% in intraday trading.

In the real estate world, mortgage delinquencies rose to a record seasonally adjusted 9.2% of all mortgages. Additionally, the inventory of homes in foreclosure increased to 4.3% and loans overdue by at least 90 days rose to 8%, the highest on record.  This worrisome data didn’t have much effect on iShares Dow Jones U.S. Real Estate Index (IYR), which is up 2.4% in intraday trading.

Overall all three U.S. indexes are moderately higher with the Dow Jones Industrial Average up 0.4% and the S&P 500 and Nasdaq each gaining 0.75%.

For more stories on metals and mining, visit our metals and mining category.