Recently, copper has been in the spotlight due to soaring prices driven by increasing demand. With its wide range of industrial uses, including in electric vehicles, the tight supply of copper means that any surge in demand could lead to a significant price increase.
While copper may not be considered a traditional safe haven investment like gold and silver, it still holds promise for the future. During times of inflation, copper could serve as a store of value, offering a hedge against investments in stocks and bonds and providing portfolio diversification.
Here are five different ways to invest in copper along with key risks to consider:
5 Ways to Invest in Copper
1. Copper Bullion
Investing in copper bullion, similar to gold bullion, allows you to physically hold the metal in the form of coins or bars. However, storing physical copper can be a challenge, and the only way to profit is through price appreciation.
When purchasing physical bullion, it’s important to consider the spot price and focus on bars rather than collectible coins to avoid additional charges for collectible value.
Risks: Owning bullion requires secure storage, and the buying and selling process can result in value loss due to broker margins.
2. Copper Miner Stocks
Investing in companies that mine copper provides an opportunity to benefit from both rising copper prices and increased production potential. This dual profit potential sets mining stocks apart from owning bullion.
Risks: Investing in individual mining stocks requires a deep understanding of the business and industry risks. Choosing established miners over junior miners is recommended for lower risk.
3. Copper Miner ETFs
For a diversified exposure to copper mining companies, consider investing in ETFs that hold multiple mining stocks. This approach offers reduced risk compared to owning individual stocks.
Risks: While diversification can protect against individual company risks, industry-wide issues can still impact performance.
4. Copper Futures
Trading copper futures allows for leveraged positions on copper price movements. Futures trading requires a sophisticated approach and a broker that supports futures trading.
Risks: Leverage in futures trading can amplify both gains and losses, requiring margin deposits to maintain positions.
5. Copper Futures ETFs
ETFs that trade copper futures provide a simpler way to speculate on copper price movements without the need for a futures account. These funds can be traded through traditional broker accounts.
Risks: Copper futures ETFs are more suitable for short-term trading due to expense ratios and the erosion of asset value from rolling future contracts.
Why Investors Like Copper
Investors may include copper in their portfolios for reasons such as price appreciation, inflation hedging, and diversification benefits. However, volatility and the unattractiveness of copper bullion may deter some investors.
Ultimately, investors should assess the profit potential and determine if copper aligns with their investment strategy.
Bottom Line
Deciding to invest in copper requires a thorough evaluation of demand drivers and long-term outlook. Consider investing in cash-flowing businesses that produce copper for multiple profit avenues and fair market value trading.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. Past performance is not indicative of future results.