How To Invest in Copper

Here are five different ways to invest in copper and key risks to watch...

1. Copper bullion

You can purchase copper bullion just as you would gold bullion, buying it as coins or even bars. You’ll have the enjoyment of holding it and looking at it, but this form of copper investment has major drawbacks, too. Perhaps the key one is the need to safeguard your physical copper.

To turn a profit, you’ll need to see the price of copper rise, of course. But that’s the only means of making money here, unlike various other types of investing in copper below, such as mining companies, where they can grow production and the price can rise, offering a double whammy. You can purchase physical bullion through an online dealer such as APMEX or JM Bullion, or local dealers or pawn shops may have some for sale. Local collectors may also have some.

It’s important that copper traders note the spot price – the current price to transact now – so that they can make a fair deal. If you’re looking to invest in the metal itself, stick to bars rather than coins or collectibles that may charge you for the collectible value rather than the copper content alone. (These may not be made of copper, but here are 9 of the world’s most valuable coins.)

Risks: The big risk of owning bullion is that you have to keep it safe. If you have a big enough stake, then you’ll want to protect it. Another annoyance of copper is that at a price of about $4.30 per pound, you’ll have to lug around a lot of it to store much value.

But investing in bullion poses another major downside. You’ll lose a lot of value on the purchase and sale of the metal. Brokers will buy at lower than the spot price, so that they have a price and will sell at higher than the spot price on the other end. If you need the money quickly, you could take a significant hit on your holding, receiving much less than they’re worth on the open market.

2. Copper miner stocks

If you don’t want to own copper directly, you can instead own the companies that mine it out of the ground. For investors, this may be among the best ways to participate in the metal’s upside.

Investors in a mining company can lead to profit in two ways instead of just one, as with bullion. If copper prices rise, the output of the miner rises. If the miner can boost production over time, then they can turbocharge their profit potential.

Risks: If you’re investing in individual stocks, especially mining stocks, it’s vital that you understand the business well, and that may not be easy to do. Many miners are risky, so you can’t just pick a miner and hope for the best. You’ll want to look for a proven player, and it’s probably better to stay away from so-called junior miners without a strong, productive mine.

3. Copper miner ETFs

If you don’t want to get into the nuts and bolts of individual mining stocks – and few investors do – then you can opt for an exchange-traded fund (ETF) that owns miners. Of course, many miners operate across different sectors – gold, silver and the like – so you’ll get a hodgepodge of mining companies rather than just pure copper plays, but it could be worth the diversification.

And since ETFs hold dozens of different mining stocks, your portfolio will likely be less risky than owning just a few individual stocks. You’ll be hurt less by any single stock’s underperformance.

Risks: A diversified fund can help protect you against a single company doing poorly due to specific things at that company, but it won’t help you when it comes to issues that affect the whole industry. So a downturn in copper prices or slower industrial activity may hit all copper miners, hurting performance despite diversification into multiple companies.

In addition, pay attention to the types of companies included in the fund. Some may have more established miners while others have riskier junior miners.

4. Copper futures

Copper futures can be a good way to play the rise in copper prices, and you can even play it the other way, too, if prices fall. The big advantage of using futures to trade copper is that you can use significant leverage to take a position, owning many more times copper than you could otherwise. If the price moves the way you like, you could turn a small sum into a large one fast.

Futures trading is for sophisticated investors, and you’ll need a broker that allows futures trading, and not all of the major brokers provide this service. Still, despite some drawbacks, futures are a way to make (or lose) money quickly on the moves of an already volatile commodity.

Risks: The impact of leverage in futures works both ways. If the price of copper moves against you, you’ll need to deposit money with the broker – called margin – to keep the position. Otherwise, the broker will close the position and you’ll suffer a loss.

5. Copper futures ETFs

Some ETFs do the work of trading futures contracts for you, making it easier to own and speculate on copper without the need for a futures account. You can trade the fund in a traditional broker account, with all the simplicity that involves.

One ETF here is the United States Copper Index Fund (CPER), which has an expense ratio of 1.04 percent. The fund is designed to reflect the performance of copper futures on the COMEX exchange and owns primarily copper futures contracts, though it may hold other financial assets.

Risks: A copper futures ETF may be a better pick to capture the short-term moves in the metal’s price rather than a long-term buy-and-hold. The fund charges a substantial expense ratio, and the nature of rolling future contracts can cause the erosion of asset value over time. Source