After a disastrous 2015, base metals have rebounded sharply this year. The recovery has been partly driven by seasonal demand from China. However, base metals such as iron ore and copper are also gaining from expectations that Chinese policymakers will announce further stimulus measures to boost economic growth.
The measures could include boosting spending on infrastructure, which in turn will boost demand for raw materials such as iron ore and copper. The short-term outlook for base metals certainly looks bullish, however, a stronger dollar could play spoilsport for commodities. The dollar has been gaining strength as the Federal Reserve is the only developed world central bank currently tightening its monetary policy.
The Fed will hold its two-day monetary policy meeting this week. If the central bank’s tone is dovish then it could spark a further rally in base metals.
Investors can capitalize on any upward movement in base metals through the iShares S&P/TSX Global Base Metals Index Fund (TSX: XBM). The ETF seeks to provide long-term capital growth by replicating the performance of the S&P/TSX Global Base Metals Index. In the last month alone, the ETF has gained more than 26%.
