As with other parts of the market, certain commodities and their exchange traded funds (ETFs) have shown some signs of life and have started to recover.
Part of this recovery can be attributed to President Barack Obama’s $787 billion stimulus package, which is aimed to target the construction industry, the Federal Reserve’s actions to put more spending money in the hands of consumers and businesses and other similar stimulus packages and interest rate cuts seen around the globe.
Granted crude oil is a far cry from its peak of $147/barrel seen in July, but the volatile commodity has gained about 40% since February of this year. Take a look at United States Oil (USO), which is up 7.12% over the last month. Many analysts suggest that black gold will continue to be a “hot commodity” because of tensions in oil-producing regions and the rise in the middle class of Asian countries, especially China.
Metals are another commodity that have seen a nice spark, gaining nearly 30% since mid-February. Most can thank China for this recovery. What’s amazing is that China is on the road to an overall economic recovery much more quickly than expected and one indicator of this is that the New Orders and New Order Exports lead metal prices by one month. This is one reason upward momentum has been seen in the metals market, states Prieur du Plessis of Investment Postcards.
China’s prosperity has enabled the nation to accumulate significant amounts of metals at bargain prices to bolster strategic reserves, especially copper, and its government has been buying up domestically produced metals at set prices to keep their uneconomical mines above water. Keep in mind that China and the enormous growth of emerging markets is what fueled the last surge in commodity prices and it could fuel the next one.
If you want to grab exposure to these commodities, take a look at the following ETFs:
- SPDR Metal & Mining (XME): up 31.3% over the last month and 9.7% year-to-date; trading above both its 50- and 200-day moving averages
- PowerShares Base Metals (DBB): which is up 19.8% over the last month and 22.3% year-to-date; to add icing to the cake, it has crossed both its 50- and 200-day moving averages.
Kevin Grewal 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.