We?ll be seeing the launch in London of three new...

We?ll be seeing the launch in London of three new exchange-traded funds, one each for copper, nickel and tin. Other base metal ETFs will follow next year.

What it means is that individual investors will get direct access for the first time to the physical markets in these metals. There has been a time lag since the first gold ETFs were launched in 2003, but these now have a total $US97 billion in assets.

The launch of the new funds comes at a time when investors have shown an increasing appetite for hard assets as so many heavily indebted countries, with the US leading the charge, try to inflate their way out of trouble by use of the money printing presses. Apart from the financial security aspect, it also allows investors a new form of exposure to the growing demand from developing Asia.



As for copper and tin, their prices will be further enhanced if supply deficits are as great in 2011 as being predicted ? a 500,000 tonne shortfall in copper?s case, about 23,000 tonnes for tin. Copper went through $US9000 a tonne this week, a new record price, but already reports from London are quoting analysts saying the red metal could peak as high as $US12,000/tonne next year.

But BGF Equities analyst Warwick Grigor sees possible problems ahead. It all works well when the ETFs are net buyers; as money flows in, there will be more metal bought by the funds and the price uptrend will be bolstered.

?However, the unwinding of positions is not likely to be as harmonious,? he continues in the BGF Friday client note. ?The probable scenario is that there will be a macro event which causes people to sell en masse and panic will ensue.

To put Grigor?s comment in context, all you need to do is look at what happened to these three base metals during the GFC. Copper may be worth around $US9000/tonne now, but it hit well over $US8000 before the crisis, and then fell as low as $US2845/tonne on Christmas Eve 2008.

Tin went from over $US27,000/tonne to $US9775, while nickel managed a plunge from $US51,600/tonne to $US9050 two years ago this weekend.