Physically-backed exchange traded funds (ETFs) are growing up and moving on…to other metals. What impact they’ll have on prices is still a matter of hot debate.
One of the biggest concerns is that the existence of such ETFs will further tighten supplies and impact prices, but analysts have largely pooh-poohed that notion. The belief is that such ETFs would only impact the price in a major way when demand is already outstripping supply.
While they acknowledge that the existence of such ETFs may fuel volatility in metals, they will by and large stay in line with their fundamentals.
But few are denying that they won’t affect prices at all; in fact, analysts say that the ETFs give them even more confidence in their 2011 price projections. [Copper Moves to All-Time Highs.]
Jonathan Ratnor for The Financial Post reports that in the face of uncertainties such as a potential slowdown in China or a double dip U.S. recession, holders of ETFs may be more likely than others to sell their metal. [The Ins and Outs of Rare Earth Metals.]
It’s difficult to know the ultimate impact of these ETFs on metal prices and their volatility, especially since we’re still in the early stages.
- If you already own one of the new base metal ETFs listed overseas or plan to own one when they’re listed in the United States, it would be wise to get positioned with a buy and sell strategy in order to ensure that you’re in for potential uptrends and out if volatility hits these ETFs where it hurts.
- If you’re not comfortable with the idea of physical metal ETFs, you have other options. There are exchange traded notes (ETNs), futures-based ETFs and equity ETFs that track baskets of metals producers.
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.