Soaring prices for gold and silver have led to speculation that metals such as copper could follow suit. If so, a proposed exchange-traded fund (ETF) solely devoted to copper might be worth your consideration, after it rolls out and begins trading in the coming weeks. A registration statement for the proposed new fund, the J.P. Morgan Physical Copper Trust, was filed by the investment firm with the Securities and Exchange Commission (SEC) on Oct. 22.

Copper and other commodities have been rising lately due to the weakening U.S. dollar. When the dollar loses value, commodities gain appeal as an alternative investment. For example, the Comex gold futures posted a late-session rally on Oct. 29 to hit a new, two-week high. Gold rose 1.5% through mid-afternoon on Oct. 29 to reach $1,342 an ounce, while silver climbed 2% to hit $23.81 an ounce during the same time span. Copper finished October at about $3.78, rising for the fourth month in a row. The chart below shows how the commodity has risen since the spring of 2009.

For investors who want to buy copper cost-effectively and conveniently, with minimal credit risk, the new ETF will offer a way to do so. In fact, BlackRock Asset Management International also plans to offer an ETF aimed at copper. No matter what copper fund an investor buys, the creation of such ETFs could fuel the commodity’s rise. Analysts speculate that one of the reasons gold became a popular investment recently stemmed from the launch of ETFs, such as SPDR Gold Trust (GLD), that are tied to the yellow metal.

The advent of gold ETFs has coincided with a jump in gold prices. Investors bought a collective 28.3 tons of gold via ETFs devoted to the precious metal during the third quarter of 2010, bringing the total holdings to a new high of 2,070.1 tons. That new total is worth $87 billion, based on the price of gold at the end of the third quarter, according to the World Gold Council. Indeed, a number of gold ETFs now exist that are competing for inflows into the gold market.

It would not surprise me at all if copper rose in price as ETFs devoted to the commodity are launched. Please keep in mind that a number of factors affect the price of copper. They include: copper supply and demand; changes in expectations about the availability and the cost of mining copper; changes in the price of insuring, transporting and storing copper; and inflation.

If you want to invest in copper, you also should be aware of some of the risks. They include: unexpected global, regional, political or economic incidents; reduced economic activity or recessions, which can hurt demand for physical copper in a wide range of applications; and changes in tax, royalty, land and mineral rights under different political regimes.

The proposed J.P. Morgan fund offers the opportunity to invest in physical copper without the need for you personally to take possession of the commodity and to store it yourself. The trust’s sponsor, J.P. Morgan Commodity ETF Services LLC, arranged to have the Henry Bath Group of companies store and safeguard the trust’s physical copper holdings. Since the proposed fund still has not begun trading, you have time to think about whether you want to buy copper as an alternative investment and particularly as a hedge against a falling dollar.

If you want advice from me about which ETFs to buy and to sell, I encourage you to sign up for my ETF Trader service by clicking here. As always, I am pleased to answer any of your questions about ETFs, so do not hesitate to contact me if you have one. To send your question to me, simply click here. You may just see your question answered in a future ETF Talk.