by Jeff Reeves | July 19, 2011 10:50 am
Gold prices just can’t quit. The precious metal rolled back a bit in May but has come roaring back, with gold prices up about 8% in three weeks to top $1,600 an ounce. And in the long term, gold has seen even more dramatic gains – up about 50% in the last year-and-a-half when compared with a price of about $1,080 in late January 2010.
But while the 2010-11 gold rush is making a lot of headlines, it’s important not to overlook other surging hard assets. Silver, copper and platinum futures also have seen high volatility and considerable profits for savvy investors. Some of these hard assets are off record highs, but like gold, they are seeing strong upward momentum.
If you want to get in on soaring gold prices but are afraid you might be buying at the top, you have alternatives in outside gold mining stocks and ETFs like the SPDR Gold Trust ETF (NYSE:GLD). Those alternatives come in the form of metals like platinum, palladium, copper, silver and rare earths.
Each of these alternatives offers its own strengths and weaknesses, but most importantly, they are ways to diversify your holdings away from gold but still stay in rock-solid hard asset investments.
Here are the details on these five hard asset alternatives to gold:
You might not know it, but platinum comes in bars and coins just like gold and silver – and since it’s one of the most valuable metals per ounce, hard asset investors won’t have to worry about spatial limitations if they want to store physical platinum in a home safe.
For those with a less catastrophic outlook who are looking for a good long-term investment, platinum has the added appeal of industrial applications (including catalytic converters for automobiles), as well as luxury items such as jewelry. If and when consumers start spending again, platinum will see a spike in demand.
Platinum quadrupled from 2001 to early 2008, from around $50 per ounce to a brief high of almost $2,300. But as the market melted down in the wake of Lehman Brothers’ failure, so did platinum, which fell about 65% in nine months. However, the metal has bounced back dramatically since hitting a low at under $800 in December 2008. Platinum currently is priced north of $1,700 per ounce and climbing – doubling the investment of savvy traders who bought in two-and-a-half years ago. It’s worth noting, however, that in the short-term, platinum prices are almost flat since Jan. 1 and off peak prices of more than $1,850 in February.
So, how do you invest in platinum? Well, as mentioned, platinum coins and bars can be a good alternative to gold as a tangible investment – when bought through reliable dealers, of course. As with gold and silver, there also are ETF trusts like the ETFS Physical Platinum Shares (NYSE:PPLT) that move in lockstep with the metal. There are few pure platinum miners, and of those out there, they tend to be illiquid and OTC, such as the South African Anglo Platinum Limited (PINK:AGPPY).
As with most rare and precious metals, palladium comes in coins and bars. But the metal doesn’t quite have the glitter of gold, platinum and silver, and, despite its value, it’s an unlikely currency if the dollar disappears. So those of you looking for a hard asset to trade for food after the financial apocalypse, don’t bank on palladium.
Still, palladium’s appeal as a commodity investment is obvious, as the element is found in electronics from computers to smartphones to LCD televisions. If and when electronics sales heat up once more, following could be low supply and high demand – a hallmark of any good commodity play. Until then, as long as the flight toward hard assets continues, palladium will benefit.
Palladium was “discovered” during the dot-com boom, racing up from around $100 per ounce to more than $1,000 per ounce in five years. It then flopped to around $200 as the tech bubble burst. Yet palladium appears to be having a rebirth. The metal opened 2010 at around $420 per ounce and ended the year at almost $800, nearly doubling. Like platinum, palladium has been essentially flat in 2011 after a brief spike in February, but the red-hot run last year means the metal could be poised for more gains.
How do you play palladium? ETF Securities offers a pure palladium fund akin to its gold, silver and platinum offerings – the ETFS Physical Palladium Shares (NYSE:PALL). There also are a handful of primarily palladium miners, including North American Palladium Ltd. (AMEX:PAL), which is up 75% in the past 12 months. However, there is a much greater variety of diversified miners for stock investors. One such is Stillwater Mining Company (NYSE:SWC), which has significant palladium holdings alongside a platinum mining business. SWC stock is up 36% or so in the past year, significantly outperforming the market, though the stock has dropped dramatically during the past week or two in part because of acquisition news.
Silver has tracked gold pretty closely, roughly tripling in the past five years and quadrupling in past last decade – just like the yellow stuff. But the metals do not move in complete lockstep, as we saw this spring when silver “crashed” from $48.70 to $32.50 in just eight trading days. The good news is that disparity can work both ways, and that’s appealing if you’re looking to diversify your hard assets a bit beyond the gold market.
For all you investors preparing for the apocalypse, physical silver has actual currency potential if you truly believe the dollar will become worthless. After all, how do you buy inexpensive essentials like food or clothes with a gold bar worth thousands or a gold coin worth hundreds? Silver is much more practical.
Silver traded below $7 per ounce about five years ago, but the metal now is pushing $40. As mentioned, silver rolled back from 30-year highs near $50 per ounce in early 2011, but the metal appears to be rebounding with almost 20% gains in the past 10 weeks.
Investing in silver is easy if you’re familiar with gold investing strategies. Silver has trust ETFs, such as the iShares Silver Trust ETF (NYSE:SLV) and the smaller ETFS Silver Trust (NYSE:SIVR), which are pure plays on silver. A few miners also are primarily silver-focused. One of the largest is Silver Wheaton Corp. (NYSE:SLW), which is up about 80% year-to-date and about 520% in the past five years. Others include Pan American Silver Corp. (NASDAQ:PAAS), up 25% year-to-date; Silvercorp Metals Inc. (NYSE:SVM), up 28%; and Mag Silver Corp. (AMEX:MVG), up 33%.
Of course, if you’re looking less for an investment and more for a hedge against chaos, you can stock up on silver bars and coins to store beside your gold heap.
Unlike the other precious metals listed here, you probably won’t find rare earth metals in bar or coin form – though it’s probably only a matter of time before this idea gains currency (pardon the pun).
Rather, the appeal of rare earth metals is the fact these are the elements of the 21st century, used in space-age gear, from lasers to superconductors to X-ray machines. If you believe in a high-tech future, which is all but certain barring complete economic Armageddon, you should believe in rare earths as a good long-term investment.
There’s no easy index or futures market for rare earths, since the category includes more than a dozen different elements. But from a demand view, consider that 10 years ago, the world used 40,000 metric tons of rare earth metals per year. Today, the world uses 125,000 tons, and that’s expected to grow to more than 200,000 tons by 2014. Some estimates contend production must grow by more than 60% to keep pace with demand, or else we face a serious shortage. News of a big ocean-bed find by Japan has squashed talk of a Chinese monopoly on rare earths, but even this hefty find in the Pacific can’t change the fact the metals are highly scarce. Hence the term “rare earths.”
Investing in rare earth metals is tricky. Although the potential seems great for rare earths, there are few practical ways to invest in this commodity. Perhaps the best examples are Rare Element Resources Ltd (AMEX:REE), with a market cap of $400 million, and Molycorp, Inc. (NYSE:MCP), with a market size of about $4 billion. Both trade on legitimate U.S. exchanges, and both have tallied dramatic returns. REE is up 200% in the past year, while MCP is up over 400%. There also are pink sheet, foreign and microcap stocks that are pure plays, including Rare Earth Metals (PINK:RAREF), which mines in Canada. For a more diversified play on rare earths, you can consider the mining majors that have a stake in rare earths, as well as conventional metals. For instance, just recently, Aluminum Corp of China (NYSE:ACH) announced plans to take a majority stake in two China rare earth metals companies totaling at least $1.5 billion.
OK, so it would take a lot of room to store your rainy-day fund in copper pennies under your mattress. But the great upside to copper is its affordability – and subsequent liquidity. Copper is flexible, cheap and a good conductor of electricity, so you can find it in everything, from sophisticated electronics to the pipes and wires in your home. Any industrial recovery simply can’t happen without copper, and unless we all go back to farming goats, the metal will remain in demand even during weak economic times. People need wires and pipes, even if they aren’t buying new flat-screen TVs or SUVs.
Think copper can’t be a gold mine just because it’s cheap? Think again. After a record low of $60 for copper futures in November 2001, futures on the metal hit a staggering $458 in February of this year – nearly eight times in returns.
Like other metals on this list, after the spike in February, copper has rolled back to essentially flat on the year. But a recent report from Maike Futures projected another strong rally for copper that could set new records in the months ahead.
How does one buy copper, beyond getting rolls of coins? Well, the iPath Copper Trust (NYSE:JJC) is a pure play on copper prices like the other trusts listed here. The fund is essentially flat year-to-date, as is copper itself in the same period. Another alternative is to get slightly more diversified through the PowerShares DB Base Metals ETF (NYSE:DBB), which is divided evenly between copper, aluminum and zinc. DBB also is flat so far this year, though up about 35% in the past 12 months. Along the same lines, there’s also the iShares Chile ETF (NYSE:ECH), which has huge copper exposure because 50% of Chile’s exports are copper. The ECH Chile ETF actually is about 8% in the red so far in 2011 based on its other holdings and troubles in the global economy. Of course, you have no shortage of copper miners, including blue chips Southern Copper (NYSE:SCCO), Freeport McMoRan (NYSE:FCX) and Teck Resources (NYSE:TCK), among others.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.
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