A Sustained Copper Rally Could Benefit the DBB ETF

Gold can’t have all the fun when it comes to investing in metals. While the precious metal has been a go-to safe haven, base metals shouldn’t be forgotten as part of an investor’s portfolio with metals like copper possibly benefiting from the forthcoming presidential election.

Copper is already riding a two-year high and that said, one fund to get exposure to base metals is the Invesco DB Base Metals Fund (DBB). The ETF seeks to track changes, whether positive or negative, in the level of the DBIQ Optimum Yield Industrial Metals Index Excess Return™ (DBIQ Opt Yield Industrial Metals Index ER or Index) plus the interest income from the Fund’s holdings of primarily US Treasury securities and money market income less the Fund’s expenses.

The Fund is designed for investors who want a cost-effective and convenient way to invest in commodity futures. The Index is a rules-based index composed of futures contracts on some of the most liquid and widely used base metals — aluminum, zinc and copper (grade A). You cannot invest directly in the Index. The Fund and the Index are rebalanced and reconstituted annually in November.

The potential of a Democratic “blue wave” is buzzing within the capital markets and a recent Kitco News article noted that the “Democrats stimulus plan will be positive for gold, but it will be extremely positive for copper, said John Thomas Steen, associate professor at the University of British Columbia’s mining school.”

“On Friday Steen joined Kitco Roundtable to discuss stimulus, renewables and the electrification of everything, and the knock on affect on metals, chiefly copper and nickel,” the article noted further. “Steen was joined by correspondent Paul Harris; editor Neils Christensen; and mining audiences manager, Michael McCrae. Republican and Democrat leadership are negotiating COVID-19 stimulus package in excess of $2 trillion. President Biden is ahead in the polls, which could tilt the eventual stimulus to policy goals favored by Democrats.”

“A Biden win is extremely positive for copper. The estimated cost of preparing the electricity grid in the U.S. … is about a trillion dollars. That’s a huge stimulus, but it’s a wicked amount of copper,” said Steen.

The mining sector is already preparing for an increased demand in copper, the article noted.

“Big miners like Rio Tinto and BHP Billiton are preparing for future copper demand,” the article said. “In the spring the number two gold miner, Barrick Gold, said it is on the hunt for copper deals. Earlier this week Newmont’s Tom Palmer told Reuters that copper will account for up to one-fifth of the metal produced by the end of the decade given its current project pipeline.”

For more market trends, visit ETF Trends.