Have Commodity ETFs Topped Out? | ETF Trends

For the larger part of this year, commodity exchange traded funds (ETFs) were soaring. Then recently, they had their wings clipped. Was the correction the beginning of the end, or a pause for breath for more?

In the recent correction, commodities fell an average of about 8%. We think that given the fundamentals and the fact that commodities remain above their long-term trend lines, a case can be made that the commodities rally isn’t cooling.

Three key things are driving commodities right now:

  • There is increasing worldwide demand for them – from emerging to developed markets, people want, use and need commodities in ever greater numbers
  • There’s uncertainty in global currencies, which makes commodities attractive because they maintain their value
  • Investing in commodities is easier for investors these days with the evolution of ETFs

When you look at other commodities in more detail, the case for them holds up on a macro level.

Gold: Gold prices have shot up about 20% or more this year, thanks to safe-haven seeking, jewelry demand, investment demand and a small bit of industrial demand. If you feel like you missed the rally, consider Market Vectors Gold Miners (NYSEArca: GDX), which gives exposure to miners around the world. Miners are enjoying huge profit margins now; it costs around $300 to extract an ounce of gold from the ground. [The Benefits of Owning Commodity ETFs.]

Silver: Silver is often called the “poor man’s gold” because it’s so much cheaper, but it’s more versatile than gold in industry, jewelry and an investment. Silver is also viewed as a leveraged gold play: when gold prices are rising, silver moves faster (it falls harder when gold is falling, though). iShares Silver Trust (NYSEArca: SLV) this ETF tracks the spot price of silver