NEW YORK ( TheStreet) - A financial manipulation of the copper market is coming, through the creation of physically based copper ETF's later this year. Understanding how this works and how it will affect the commodity price can give us a hint on how to profit from this inevitable rise in the metal's price this year.

Commodity ETFs are a relatively new asset class and have been growing by leaps and bounds. Two types of ETF's have emerged, trying to capture the price movement of underlying commodities: Those that use the futures markets and over-the-counter swaps to financially represent the changes in prices, and others that depend upon physical stockpiling to represent actual commodity holdings of the fund.

The method employed is a very simple choice. If a commodity is difficult to store, a fund manager is forced into the futures markets to replicate a physical holding, a method fraught with enormous problems of monthly rolls, OTC swaps as well as extra commissions and fees.

How Copper ETFs Affect Copper Prices

As I outline in my upcoming book, Oil's Endless Bid, due out from Wiley and Sons in March, these are not insignificant issues and make oil and gas ETF's perfectly awful investments for retail customers just looking to track the price of the underlying commodity.

For metals, however, the choice of physically buying and storing commodities is possible and avoids all of these problems. It is most simple with gold, one of the most dense and expensive metals. Gold requires little space for storage and has multiple and easy networks for both acquiring and selling the product with little slippage. The largest commodity ETF by far, the SPDR Gold Trust ( GLD) has a market cap of almost $60 billion, represented by physical stockpiles held by the fund's manager JPMorgan, in London.

Stockpiling physical metals for ETF's may avoid the problems of engaging financially in the futures markets and avoid all regulatory efforts to limit them, but it does inevitably remove physical product from the market from those that need it and contributes to supply problems.

Indeed, investment in the GLD has undoubtedly diminished supply and has helped increase prices to jewelry manufacturers. How much the GLD has propped prices for gold in the last few years based on ever increasing shares and market cap is difficult to know, and admittedly on pure speculation, but I believe it has been worth a few hundred dollars an ounce at least.

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