| Gold has extended its record streak recently, as prices hover near $1,350 an ounce. But while the 2010 gold rush is making a lot of headlines, it’s important not to overlook other hard assets that are also surging. Silver, copper and platinum futures have also rallied to fresh highs recently.
And with all the talk about a gold bubble in the works as investors rush to stake their claim in this asset, it’s worthwhile to take a look at other hard assets that are good investment alternatives to gold. Each of these alternatives offers its own strengths and weaknesses, but most importantly they are ways to diversify your holdings away from gold if you are worried about a crash. Here are five hard asset alternatives to gold for investors to consider. |
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Gold Alternative #1 – Platinum
| Appeal: You may 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, you won’t have to worry about spatial limitations when stowing Armageddon funds in your bunker. And 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 like jewelry. So, if and when consumers start spending again, platinum will see a spike in demand.
Recent Performance: Platinum quadrupled from 2001 to early 2008, from around $50 an ounce to a brief high of almost $2,300. But as the market melted down in the wake of Lehman’s failure, so did platinum — falling about 65% in nine months. However, the metal has been bouncing back dramatically since a brief low below $800 in December, and has a current price north of $1,600 an ounce. How to Invest in Platinum: 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 are also ETF trusts like the ETFS Physical Platinum Shares (NYSE: PPLT). 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). |
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Gold Alternative #2 – Palladium
| Appeal: As with most rare and precious metals, palladium comes in coins and bars. But the metal doesn’t quite have the “street cred” of gold, platinum and silver, and, despite its value, it’s an unlikely currency if the dollar disappears. But palladium’s appeal as a typical 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 — and assuming SkyNet does not become self aware, they will eventually — there could be the low supply/high demand that is a hallmark of any good commodity play.
Recent Performance: Palladium was “discovered” during the dot-com boom, racing up from around $100 an ounce to over $1,000 an ounce in five years. Then it flopped to around $200 as the tech bubble burst. Palladium is now trading above $550 an ounce — up almost 40% from lows in early 2010 — and could be poised for more gains. How to Invest in Palladium: ETF Securities offers a pure palladium fund akin to its gold, silver and platinum offerings — the ETFS Physical Palladium Shares (NYSE: PALL). There are also a handful of primarily palladium miners including North American Palladium Ltd. (AMEX: PAL), which is up 40% in the last three months and is significantly outperforming the market year-to-date. However, there is a much greater variety of diversified miners such as Stillwater Mining Company (NYSE: SWC), which has significant palladium holdings alongside a platinum mining business. SWC stock is up an impressive 72% so far in 2010. |
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Gold Alternative #3 – Silver
| Appeal: Silver has tracked gold pretty closely, tripling in the last five years and quadrupling in the last decade just like the yellow stuff. But the metals do not move in lockstep, and that provides investors an opportunity to diversify and protect against shocks in the gold market. And 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?
Recent Performance: Silver traded under $7 an ounce just five years ago, but the metal has tripled in value since 2005. Silver is now near a 30-year high at around $22 an ounce. And according to a recent Deutsche Bank report, the metal may climb 20% or more in the next year. How to Invest in Silver: Like gold, silver has trust ETFs such as the iShares Silver Trust ETF (NYSE: SLV) and the smaller ETFS Silver Trust (NYSE: SIVR) that are pure plays on silver. There are also a few mainly silver miners. One of the largest is Silver Wheaton Corp. (NYSE: SLW), which is up about 80% year-to-date and about 520% in the last five years. Others include Pan American Silver Corp. (NASDAQ: PAAS) up 25% YTD; Silvercorp Metals Inc. (NYSE: SVM) up 28% YTD; and Mag Silver Corp. (AMEX: MVG), up 33% YTD. Of course, if you’re looking less for an investment and for more of a hedge against chaos, you can stock up on silver bars and coins to store beside your gold stockpile. |
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Gold Alternative #4 – Rare Earth Metals
| Appeal: Unlike the other precious metals listed here, you won’t likely find rare earth metals in bar or coin form — though it’s probably only a matter of time before this idea gains currency. Rather, the appeal of rare earth metals is the fact that 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, you should believe in rare earths as a good long-term investment.
Recent Performance: There’s no easy index or futures market for rare earths since the category includes over 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 over 200,000 tons by 2014. Some estimates contend production must grow by over 60% to keep pace with demand, or else we face a serious shortage. How to Invest in Rare Earth Metals: Though the potential seems great for rare earths, there are very few practical ways to invest in this commodity. Perhaps the best examples are Rare Element Resources Ltd (AMEX: REE) with a market cap of $250 million and Molycorp, Inc. (NYSE: MCP) with a market size of about $2 billion. Both trade on legitimate U.S. exchanges — and both have tallied dramatic returns in 2010 of more 100%. There are also 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 always 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. |
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Gold Alternative #5 – Copper
| Appeal: 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.
Recent Performance: Earlier this year, copper prices fell 25% after a dramatic 2009 rally thanks to fears of a double-dip recession. But the commodity has leaped back up to over $7,700 a ton on the London Metals Exchange and is approaching a two-year high. That two-year high was an all-time peak set at the height of the market in 2008, by the way. So if copper pushes through that, it will be in record territory. On Oct. 5, Goldman Sachs raised its copper price forecast, so those levels seem very possible. How to Invest in Copper: The iPath Copper Trust (NYSE: JJC) is a pure play on copper prices. Thanks to the recent rebound, the fund is up 27% in the last three months. 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 is up a comparable 23% in the last three months. Along the same lines, there’s also the iShares Chile ETF (NYSE: ECH), which has huge copper exposure since 50% of Chile’s exports are copper. The ECH Chile ETF is up a very nice 28% in the last three months and up 35% so far in 2010 based on coppers resurgence and the booming emerging market’s growth. Then, 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. |
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