Copper is one of the most widely used metals around to world. Mainly used in the construction industry, approximately 95% of the physical copper mined today is used to make wiring, tubing and piping, and a variety of industrial machinery applications. Since the price of copper is directly tied to the construction of new buildings, it is considered an excellent indicator of the overall health of the world economy. When copper prices rise, it is directly associated with the need for construction materials.
There are many ways to invest in copper. Unlike precious metals like gold and silver, most investors do not choose to hold the physical metal. Since the price of copper is only a few dollars per pound, buying copper bullion is a very inconvenient way to invest, as a large storage area would be required to store any significant amounts of copper. Your banks safe deposit will fill up quickly if you start filling it with copper. For most investors, there are better ways to own copper.
One of the ways that many choose to invest in copper is to purchase stock directly in mining companies. There are hundreds of publicly traded companies who mine for copper, and their stock price is highly dependent on the price of the metals that they mine. Generally the price of the stocks correlates very closely to the price of the metals.
If you choose to purchase mining stocks as a way to invest in copper, it may be beneficial to select mutual funds or other types of investment vehicles that spread the risk across several different companies. This will ensure that your investment will be more closely tied to the price of copper, and not impacted from one specific company. Also keep in mind that most mining companies mine a variety of different metals, but with some research you should be able to find companies whose main product is copper.
Some investors also choose to purchase copper futures as a way to invest in the metal. Futures are essentially a contract on a commodity, in this case copper, with an attempt to predict the value of the product at some point in the future. For example, a buyer who purchases an October copper contract at $3 per pound is obligated to purchase that copper in October for $3 per pound, regardless of where to price of the metal is actually at when that time comes. As a speculator, the risk of investing in any type of future contract is high risk, and should only be done if you clearly understand the risks associated with this type of investment.
With the price of copper and many other base metals directly associated with the construction industry, many feel that it has a close correlation with the strength of the world economy. In many cases it has an inverse reaction to precious metals, which are often purchased as a hedge against inflation during uncertain times. While some people choose to purchase physical copper like coins and bars, the relative low cost of copper makes this an inefficient way to invest due to storage constraints. Purchasing stock in copper mining companies or predicting futures in the metal is generally preferred among investors.
Remember, all investments require risk. Always understand the risks involved prior to making any investment. This article is for informational purposes only.