Metal surge may mean time to purge

Be careful about chasing the rally in industrial metals.

Copper, zinc and nickel are rallying yet again today, setting yearly highs.

These metals typically lead during an economic recovery, analysts say, in anticipation of a pickup in manufacturing.

But at this point, the metals markets “are getting ahead of themselves,” said Edward Meir, senior commodity analyst at MF Global Inc. in New York.

Observers warn that China has been a big source of demand for metals, but it is unclear who the buyers are and whether they are industrial users or speculators.

Prices could fall quickly if speculators decide to dump supplies or sell futures.

The Dow Jones-UBS Industrial Metals Subindex was up 57.4% year-to-date through yesterday and gained 75.1% since its low on Feb. 23.

Advisers and their clients can participate through ETFs that track metals prices.

For more on this story and the long-term commodities “supercycle,” see the Aug. 17 issue of InvestmentNews.