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Copper ETFs Surging: Will the Rally Last?

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Copper prices have been soaring in recent times courtesy of rebounding factory activity data from China. China said manufacturing activity expanded in June with the official Purchasing Manager’s Index coming in at 50.9. the reading beat economists’ expectations of 50.4. PMI readings above 50 indicate expansion.

If this was not enough, Chinese equity markets are delivering the best daily performance in five years.Apart from upbeat Chinese demand, supply disruptions at mines in South America also led to the rally. Notably, China matters the most for this metal as the country is the world’s biggest consumer of this industrial metal, accounting for roughly 40% of global copper demand. Global economic reopening and further fiscal and monetary stimulus from many other economies have been driving the metal’s prices.

Will the Rally Last?

Copper prices are likely to even out in the coming quarters despite a recent surge in the red metal’s value, analysts have predicted. “The copper rally over the past month from $5,700 a ton to over $6,000 a ton has occurred against a backdrop of flat to falling equity prices and bond yields, leaving copper looking overvalued by $220 to $420 per ton based on these historical relationships,” analysts from the Citigroup said in a note last week.

Analysts at Saxo Bank said that prevalent beliefs that the economy will return to normalcy within the next few quarters “will most likely turn out to be wrong.” So, copper prices, a gauge of economic wellbeing, are likely to tread lower in the long term.

“There’s a whole slew of the population out there that is either furloughed, is losing their job or doesn’t know what’s going to happen to their job, so the risk is that they’re not going to be going out into the market buying some of the big ticket items that contain copper,” said the principal analyst in Wood Mackenzie’s copper team, as quoted on CNBC.

In short, while most strategists expect a demand recovery, they are cautious about the extent of recovery that could drive the already-high prices further higher. Against this backdrop, investors may want to have a look at the copper investing instruments available in the market, so that they can follow the price charts of the products. These options are:

iPath Series B Bloomberg Copper Subindex Total Return ETN (JJC - Free Report)

The ETN tracks the Bloomberg Copper Subindex Total Return, which seeks to deliver returns through an unleveraged investment in the futures contracts on copper. The fund charges 45 bps in fees and gained 23.8% in the past three months.

Global X Copper Miners ETF (COPX - Free Report)

This ETF represents an equity option for copper investors, tracking the Solactive Global Copper Miners Total Return Index. This fund holds 27 stocks in its basket and charges 65 basis points a year in fees for the exposure. American firms make up just 5% of assets, leaving a one-fourth of the basket for Canada, and 13% for China. The fund added about 46.6% in the past three months.

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