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