The previously downtrodden SPDR Metals & Mining ETF (NYSEArca: XME), which is designed to track the broad metals and mining segment, got a lift Monday, but investors should approach this volatile ETF with caution, particularly with trade tensions still running high.
“A trade deal between the U.S. and China would send commodity prices – and mining stocks – soaring – but Donald Trump dampened hopes of an agreement, insisting he was not ready to make a deal,” reports Callum Keown for Barron’s.
XME tracks the S&P Metals and Mining Select Industry Index. The ETF “seeks to provide exposure to the metals & mining segment of the S&P TMI, which comprises the following sub-industries: Aluminum, Coal & Consumable Fuels, Copper, Diversified Metals & Mining, Gold, Precious Metals & Minerals, Silver, and Steel,” according to State Street.
Goldman Sachs is forecasting that the ongoing U.S.-China trade war will have a larger effect on growth. In fact, the global investment firm just lowered its fourth-quarter growth forecast by 20 basis points to 1.8%, which could negatively affect U.S. equities moving forward.
Trade Blues For Precious Metals
“Copper prices rose on Monday after China, the world’s largest importer of copper, announced new stimulus measures to boost its economy,” according to Barron’s. “China’s central bank unveiled interest rate reforms over the weekend, aimed at lowering borrowing costs for companies.”
Some analysts are growing concerned that global troubles could drag down the industrial metal as well. Along with the trade concerns, copper prices were weakening on softening global economic data. The base metal is a significant component in many industries, including construction, and is widely seen as a barometer for global economic health.
Earlier this month, copper hit a bottom-barrel two-year low as chaos was ensuing in equities. Due to copper’s widespread use, particularly when it comes to home building and commercial construction, it’s a good measuring stick of how well the economy is doing. Good news: sentiment toward the red metal is improving.
“The mining industry, as other sectors, hope for a resolution of the trade disputes between the U.S. and China, but a further escalation or the absence of a deal would put an end to any optimism,” reports Barron’s.
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