Investors can invest in copper either directly or indirectly. Within those two primary methods, there are multiple ways to invest in the metal, including physical copper, futures, stocks, ETFs, and mutual funds.
Copper & Copper Investment Basics
Copper is a soft, reddish-gold metal that is used to make currency in addition to having industrial applications such as piping, electrical wiring, car radiators, air conditioners, home heating systems, and steam boilers. These qualities make copper a versatile commodity and a financial asset that can be used as an investment.
Investments in copper can be either direct or indirect and can be made through copper bars, copper coins, futures, mutual funds, stocks, exchange-traded funds (ETFs), or options on eligible stocks and ETFs.
Investing in Copper Directly
To invest in copper directly, investors can hold it in physical form, which can be done through the purchase of copper bullion bars or copper coins. Although not as direct as the purchase of coins or bullion, investors can also gain exposure to the value of copper through the purchase of futures.
- Bullion bars: Similar to gold and silver, copper can be purchased in the form of bullion bars from metals dealers.
- Copper coins: More convenient than the larger bars, copper rounds and copper coins can be bought in smaller sizes from private dealers.
- Futures: Purchased through contracts, copper futures require the investor to buy or sell a certain amount of copper on a specified expiration date, which creates exposure to copper. The position could be closed before expiration or rolled over to a new contract. Similar to other commodity futures, investors rarely intend on taking ownership of the asset itself.
Warning: Although copper is a widely used metal, it is not necessarily a suitable investment for all investors' portfolios. For example, the price of copper can be influenced by multiple factors, including the health of global economies, and supply and demand for industrial use. Thus, the price of copper is not predictable, especially in the short term. The type of investors that typically gain exposure to copper through futures and options are those who are willing to take on the added risk of short-term price fluctuation. Some investors use copper and other commodities for diversification and hedging strategies.
Investing In Copper Indirectly
- Copper miner stocks: If an investor wanted to add exposure to copper as an equity investment, they could choose to buy stocks of copper mining companies.
- Copper ETFs: An investor can also buy shares of an ETF designed to track the price of copper, less fund expenses. Different copper ETFs may hold copper bullion, copper futures, or stocks of copper mining companies. Some may also be leveraged.
- Copper mutual funds: Investors can gain indirect exposure to copper by purchasing shares of a mutual fund that holds stocks of companies associated with the mining of copper. Some broad basket commodity mutual funds and natural resources mutual funds include copper miners in their holdings.
- Options: Purchasing an option provides the owner with the right, but not the obligation, to buy (call option) or sell (put option) an asset that is linked to copper, such as a stock or ETF.
Tip: Indirect investments in copper may have wildly varying degrees of exposure to the metal and different degrees of leverage and risk from other assets. Investors should be sure to understand the nature of the assets in any copper investment and their expected relationship to the metal itself.
Pros & Cons of Investing In Copper
Pros of Investing In Copper
- Multiple ways to invest: Copper is a frequently traded commodity and investors have a range of choices, including physical copper, copper mining stocks, ETFs, and broad basket commodity mutual funds, to gain direct or indirect exposure to the metal.
- Hedge against inflation: Since copper is a widely used industrial metal, its increased demand during economic expansion makes copper investments a potential hedge against inflation or other broad economic factors.
Cons of Investing In Copper
- Economic sensitivity: As an industrial metal, demand for copper can fall significantly during periods of economic weakness.
- Limited exposure: Investing in mutual funds or ETFs may provide only limited exposure to copper in a broader portfolio of other holdings. Some ETFs may also contain derivatives and may be leveraged.
- Storage, insurance & other costs: Purchasing the physical metal may entail other costs such as storage or insurance.
- Market risk: Like other commodities, the price of copper can see wide fluctuations in the short term. Trading copper futures contracts may result in losses that are greater than the amount deposited with a broker.
Important Note: Copper mining is controversial and expensive, which adds risks for copper mining stocks.
Researching Copper Investments
There are multiple resources for researching copper investments but investors should be wary of depending on research sourced from parties who are trying to sell direct or indirect copper investments.
Tip: Investors are encouraged to research sector funds that invest in copper, copper mining stocks, or any investments in the natural resources category. Use Seeking Alpha's ETF screener to search for commodities funds in the subclass "precious metals".
Investors who wish to add copper to their portfolio have a wide range of options, including physical copper bullion and coins, copper mining stocks, copper ETFs, and certain commodity-based mutual funds. Investors should carefully assess the benefits and risks of various copper investments before buying.
This article was written by
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.