Commodities and currencies have become hot-ticket asset classes in the past year. With the well-being of many countries tied to the commodity reserves they hold, trading in currency exchange traded funds (ETFs) can also provide indirect exposure to commodities as well.
The foreign exchange market is, at times, highly correlated with other investment assets, such as commodities, writes Richard Lee for Investopedia. Lee provides three examples to look at:
Gold. A large portion the world’s gold supply comes from the South African region, with South Africa ranking among the top-five gold producers. As a result, the South African rand is positively correlated with the price of gold. In contrast, the relationship between the U.S. dollar and gold is usually negatively correlated.
- WisdomTree Dreyfus South African Rand (NYSEArca: SZR)
Silver. Mexico is one of the top producers of silver, coming in at second place for 2009 and producing 15% of the global silver supply, which makes the Mexican peso important when dealing with Mexico’s silver mines. Under the circumstances, the price of silver and Mexico’s peso both share a strong positive relationship.
- CurrencyShares Mexican Peso Trust (NYSEArca: FXM)
Copper. Maturing economies need lots of copper for manufacturing commercial and retail products, which gives countries like Chile an edge – Chile produces around a third of the overall copper market. Consequently, those who need copper will most likely need to deal in Chilean pesos. The result is a strong positive correlation between Chile’s currency and copper prices.
For more information on currencies, visit our currency ETFs category.
You can also take the broad route and easily gain exposure to all commodity currencies through the WisdomTree Commodity Currency Fund (NYSEArca: CCX), which owns all the currencies of major commodity-producing countries in one ETF, including Australia, South Africa, Brazil, Norway, Canada and more.
Read the disclaimer; Tom Lydon is a board member of Rydex|SGI.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.