Investing in Base Metals

Base metals refer to non-ferrous metals used for industrial purposes. The most widely used include copper, zinc, nickel, and lead. From the purposes of an investment discussion, the term “base metals” is often more broadly applied to include additional common metals such as iron, steel, molybdenum, tin, aluminum, and a variety of other mining products. Precious metals such as gold, silver, and platinum are not included with this group.

In general, the driving force of the price of base metals is the economic growth and need for building and infrastructure development. Many consider the rise or fall of base metal prices to be the best indicator of global economic health, since all construction of new buildings, roads, bridges, as well as consumer products are dependent on base metals.

Investing in base metals is different than investing in precious metals; since they are lower valued commodities, it is not realistic to hold the physical product in the same way that you might own a gold coin or a silver bar. Investing in the base metals requires a “paper” investment, such as stocks, ETFs, mutual funds, or futures trading.

There are literally thousands of mining operations around the world producing base metals. Many of these are publically traded companies that you can purchase stock in. Their value is highly dependent on the price of the commodities that they produce, so increases in base metal prices will generally be reflected in stock prices. With that said, it is important to research past performance of companies. Many investors choose to acquire mutual funds and ETFs, rather than keeping all of their eggs in one basket by choosing specific companies. These options are often a better way to capitalize on the rise of base metal prices. Of course various funds will perform differently, so researching past performance is always important.

The futures market is another way that investors can invest in base metals. This requires speculation that the price of a specific commodity will rise over a period of time. While the potential for large returns are greater, there is also a higher risk of loss, as these are generally considered to be a short-term speculative investment.

Investment in base metals may be a good idea if you feel that there is optimism in the global economics. Many emerging economies such as China and India have driven up demand in the base metals markets for many years, and many believe that the rise will continue into the future. Unlike precious metals, they are more directly tied to industrial uses, and prices tend to fluctuate less wildly than with gold and silver. The downside for many investors is that they cannot be held physically and are not easily liquidated for cash in the same way that bullion is.

Keep in mind that all types of investment have risks. Information in this article is for informational purposes only. It is highly recommended that you consult with a professional before making any investment.

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