Decade-High Copper Price Drives These ETFs Higher

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Commodities have been soaring and hit their highest levels in eight years. While the shine of gold and silver wanes, energy and industrial metals are currently red hot on hopes of speedy economic recovery that will lift the demand for the commodities. In particular, copper skyrocketed to a decade-high and has doubled since the March lows as the world recovers from the pandemic.

In fact, the red metal is heading for a consecutive eleventh monthly rise in February on expectations that post-crisis demand will outstrip near-term supply. This is especially true as supply tightens and demand outlook brightens. Inventories of the top consumer of the raw material – China - dropped to near-decade lows at a time when demand is supposed to be tepid because of the Lunar New Year holiday. The tight supply conditions are expected to persist given environmental policies accelerating the use of copper and rising investments in renewable energy and electronic vehicles, which will require huge volumes of the raw material.

Meanwhile, an unprecedented stimulus coupled with near-zero interest rates will fuel demand and lift inflation, thereby putting pressure on the U.S. dollar. A weak dollar makes dollar-denominated assets cheaper for foreign investors, potentially spurring demand for the red metal. Further, continued bullish sentiment toward base metals after the Chinese New Year will continue to drive the price higher.

Apart from these, the metal market is benefiting from the positive roll yield in the futures market. This is because the market is currently in a state of backwardation, where spot contracts are trading at a premium to futures. This signals that the copper market is tightening and demand is robust, paving the way for the rally in base metal. This trend is likely to persist at least in the near term, acting as the catalyst for the commodity.

Surging copper prices are also providing a boost to miners, driving up the stock prices and raising the prospect of more blockbuster returns to shareholders.

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