Expectations for Economic Stimulus Boost Copper and Gold Together... ETFs and ETNs Also Stirred Up

[Image source=Yonhap News]

[Asia Economy Reporter Eunmo Koo] Expectations for the novel coronavirus disease (COVID-19) vaccine and the U.S. economic stimulus package have combined to drive up the prices of gold, considered a safe-haven asset, and copper, a cyclical commodity sensitive to economic conditions. As commodity prices in the asset market show a clear upward trend, the prices of exchange-traded products (ETPs) linked to these commodities are also continuously rising.

According to the London Metal Exchange (LME) on the 22nd, copper closed at $7,964 per ton on the 18th (local time). During the session, it briefly surpassed $8,000, marking the highest price in seven years since March 2013. Gold, which had stalled last month amid vaccine expectations, is also regaining momentum. The price of gold on the New York Commodity Exchange (COMEX) has risen 5.7% this month, recovering to $1,882.8 per troy ounce.

As commodity prices continue to rise, the prices of exchange-traded products (ETPs) linked to copper have been hitting new highs daily. According to the Korea Exchange, since last month through the day before yesterday, KODEX Copper Futures (H) rose 18.2%, and TIGER Copper Physical increased 13.6%. The returns on exchange-traded notes (ETNs) were even higher. During the same period, Samsung Leverage Copper Futures ETN rose 40.0%, and Shinhan Leverage Copper Futures ETN increased 35.9%. Stocks linked to gold prices are also gaining strength. TIGER Gold Futures (H) rose 7.7% this month, while Shinhan Gold Futures ETN (H) (7.6%) and KODEX Gold Futures (H) (7.5%) also achieved returns around 7%.

The start of COVID-19 vaccinations has fueled optimism that the pandemic will end sooner than expected, along with expectations that additional U.S. economic stimulus measures will be approved. These factors have recently contributed to the rise in commodity prices, including copper. In the case of copper, supply reductions due to COVID-19 outbreaks and strikes in Chile and Peru, the largest suppliers, have also influenced the price increase.

Heightened inflation expectations are also stimulating commodity prices. The December statement from the U.S. Federal Open Market Committee (FOMC) raised expectations for inflation by indicating that accommodative monetary policy is likely to continue through 2022 and by revising upward economic and price forecasts.

Whether commodity prices will continue to rise depends largely on whether inflation expectations persist, with particular emphasis on the direction of oil prices. So-hyun Kim, a researcher at Daishin Securities, explained, “For oil prices to continue rising, it is essential that the OPEC+ (Organization of the Petroleum Exporting Countries and 10 major oil-producing countries) regular meeting on January 4 next year maintains the current production cut targets. Despite recent oil price increases, uncertainty remains over oil demand due to lockdown measures caused by COVID-19 outbreaks centered in the U.S. and Europe.”

Especially for copper prices, China’s demand is crucial, so manufacturing indices need to be monitored. The expectation for Chinese demand has driven the upward trend amid a weakening dollar and favorable Chinese economic indicators. Soo-bin Shim, a researcher at Kiwoom Securities, stated, “China’s December Manufacturing Purchasing Managers’ Index (PMI) is expected to fall below the previous month’s level, so if the data is released in line with market expectations, downward pressure may increase somewhat.” However, she added, “Considering that the index still remains above the baseline (50), it is likely that any adjustment will be limited.”