Precious metals and the related exchange traded products are soaring this year, but the same cannot be said of their industrial metal counterparts. In what could be some good news for industrial or base metals and the corresponding exchange traded products, that trend could be poised to change.
As global economies gain momentum, industrial metals and commodity-related exchange traded funds are beginning to turn around.
Industrial metals like copper, nickel, iron and steel have all rebounded in recent months as traders bet on improving global economic conditions would bolster demand for the base metals after prices hit multi-year lows.
Related: Miner ETFs Surge on Improving Metals Prices, Economic Outlook
Popular avenues for playing industrial metals include the PowerShares DB Base Metals (NYSEArca: DBB) and the iPath Bloomberg Copper Subindex Total Return ETN (NYSEArca: JJC). DBB is comprised of futures contracts, offering investors exposure to base metals such as aluminum, zinc, and copper.
Supporting the recent gains in base metal prices, markets saw improving data from China, the world’s largest consumer of industrial metals. However, some are beginning to doubt the sustainability of the metal market, pointing to signs of potential weakness in Chinese growth ahead.
Looking at DBB’s chart, “you can see that the fund has been trading within a defined uptrend and the recent pullback toward the dotted trendline will be used as a guide for determining the placement of buy orders as well as stop-loss orders. Notice how the trendline propped up the price on each successive pullback so far this year,” reports Investopedia.
Related: Strengthening Dollar Plaguing Copper ETN
Copper has been an obvious laggard among industrial metals this year. More concerning in the near-term is the fact that some market observers believe the path of least resistance for copper is lower. JJC’s laggard status could morph into an all out decline as copper prices approach a critical technical juncture. While production cuts may support prices now, the bounce in the copper market may be short lived as fundamental factors remain weak.
Regarding DBB, “active traders will expect this behavior to continue for the remainder of 2016 and based on technical analysis; it is interesting to also note that the long-term 200-day moving average is starting to shift upward, which suggests that this could be the early stages of a prolonged uptrend. Active traders will likely protect their long positions by placing a stop-loss below $12.83,” adds Investopedia.
For more information on Copper ETFs, visit our Copper category.