Topic: Mining Stocks

Uncover the best metal to invest in for resource gains

To find the best metal to invest in, consider your temperament and how you might profit from an array of metals, including copper or gold

We continue to recommend that you cut your risk in the more volatile resource sector by investing mainly in stocks of profitable, well-established mining companies with high-quality reserves.

At the same time, for most investors, resource stocks should make up only a limited portion of your portfolio. That means that while we think you should maintain some exposure to resource stocks, you should still aim for balance that with investment in most if not all of our four other economic sectors.

If you want resource stocks in your diversified portfolio, then consider what may be the best metal to invest in.


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Best metal to invest in? Take a look at copper as many investors believe its many industrial uses make it a top choice

Traditionally, investors have bought copper stocks as a way to profit from general economic growth. Copper has a wide range of industrial uses (unlike gold and silver, which are thought of more as hedges against inflation). Copper is heavily used in the power-transmission and construction industries, in cables, wires and plumbing.

You should have some Resources & Commodities exposure. But rather than focusing solely on precious metals, as many investors do, we think you are better off getting some of that exposure through oil and gas stocks as well as base-metal producers, including copper producers.

Copper prices do tend to rise with inflation. But copper has the added advantage that its price also rises with industrial demand.

Moreover, stocks of firms that produce oil and base metals, including copper, generally have higher dividend yields than gold stocks. As well, they’re usually much cheaper than gold stocks in relation to their earnings and cash flow. That means they potentially have less room to fall if markets fall. That’s just another way of saying they can be considered somewhat less risky than gold.

Copper should benefit not just from rising demand, but also from tightening supply. In the short term, labour problems and technical delays will continue to slow global copper production.

Over the longer term, ore grades are falling at many major mines around the world as producers use up the easy-to-mine ore zones in their copper deposits. Environmental issues are also making it harder for companies to acquire permits for new mines.

Rising copper prices will lead mining companies to re-evaluate copper deposits they had previously dismissed as too low-grade to mine when prices were lower. Within existing mines, parts of a deposit that formerly seemed like waste rock can become profitable at higher prices.

Moreover, the higher copper’s price goes, the more incentive manufacturers have to re-design their products to use less copper wherever possible, or eliminate copper altogether. In addition, as recycling efforts get more widespread and efficient, they will bring more recycled copper to market.

Still, the combination of rising demand and uncertain supply will likely push copper prices higher over the next few years. The best way to profit from that is to invest directly or indirectly in copper stocks.

To sum up, we like copper’s long-term prospects. But as always, stay out of promotional penny mines that are merely drilling for copper. Also stay out of investment vehicles (like options or futures) that will only make money for you if copper keeps going up in the short term.

Here’s why gold mining stocks are preferable to holding bullion

If you do want to buy gold, we recommend staying away from buying gold bullion, coins (unless you collect them as a hobby) or certificates representing an interest in bullion. Unlike stocks, commodity investments such as gold bullion do not generate income. Instead, they come with a continuing cash drain.

If you are going to invest in gold, it should be through gold-mining stocks. Otherwise, you wind up paying for insurance and storage (either directly, or through a premium built into the price of, say, a futures contract). Gold-mining stocks have at least the potential of generating income from dividends.

Use our three-part Successful Investor approach to find the best stocks for your portfolio

  1. Hold mostly high-quality, dividend-paying stocks.
  2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
  3. Downplay or stay out of stocks in the broker/media limelight.

Which metal do you consider the most important to invest in? Why do you believe this?

What kind of return do you expect from investments in metals?

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