Copper, Aluminum - The Next Commodity Spike

It seems that many of the commodities have taken turns at being the "hot product" this year. Coffee had a big run this year making 12-year highs as Brazil suffered through increased rain. Gold took its own turn from February to June, moving up from $1,050 an ounce to just over $1,250. Recently, wheat doubled in price almost overnight, based on an export ban from heat-ravaged Russia.

In these commodity plays, there have been fundamental reasons for the spiking prices. But it has been the quick shift of capital and the chase for the quick winning trade that has supercharged these commodity moves. I'm looking at the base metals of copper and aluminum to be the next place where money runs, and I think they will offer a fantastic opportunity.

Both of these base metals now have interesting fundamental stories that will inspire the investor to look at them more closely. We know that base metals, the raw materials required for manufacturing, have been an important metric of emerging market growth. Stockpiles of the metals have long been the metric to indicate just how strong that growth is. And yet, for most of the year, stockpiles at the London Metals Exchange, and the New York Comex, have been at historic surplus.

This has been the nature of commodities price inflation in 2010 -- a steady increase in price in spite of very negative fundamentals.

But over the last month, copper stockpiles at both exchanges have finally begun to fall. Since July 19 in London, stockpiles have dropped from 426,000 metric tonnes to just over 406,000 metric tonnes, an excellent indicator of renewed emerging market growth.

In aluminum, a similar story has developed, with prompt deliveries for scrap aluminum showing real shortages for the first time in two years. Prices for prompt aluminum are now at a distinct premium to forward 30-day deliveries for the first time since 2008. There is finally a bullish supply story to tell for both of these base metals.

That's just what you've wanted this year to find the "latest" and most powerful trade in the commodity space: a real and solid fundamental story to go along with a ravenous investing public looking for the next big commodity boom. Both copper and aluminum have begun to react to this bullish scenario. Since the beginning of June, both metals have rallied more than 20% before moderating somewhat in the last week.