There are two types of metals for investment: precious metals as opposed to base metals. Precious metals include gold, silver, platinum, and some other less known materials such as ruthenium, rhodium, palladium, osmium, and iridium. Base and/or industrial metals include copper, nickel, aluminum, zinc, lead, and iron/steel. The reasons for investing in precious metals and base metals can be very different. But their prices are correlated nevertheless because of inflation.

Here are some ways to invest in metals:

  1. Leverage your bets in futures market. Only recommended for professional traders.
  2. For precious metals, you can try the following holding ETFs: IAU (0.4% expense), GLD (0.3% expense) for gold, SLV (0.5% expense) for silver, and CEF for about 50:50 gold & silver.
  3. You can invest in physical bullions or gold/silver coins. Check out my post on investing in silver.
  4. Invest in metals/mining stocks. This gives you some leverage compared to holding physical metals, as explained in my previous intro to investing in natural resources.

If you want to invest in physical gold/silver, my personal opinion is that physically obtaining your gold/silver is probably the best. You will need to deal with authentication of your purchase, physical storage & insurance, and deciding which forms, bars or coins. But all those efforts are worthwhile I believe. Investing in holding ETFs such as GLD and SLV are convenient, but they are still a form of paper assets. Paper assets are easily traceable by the government. If you’re investing for fear in a monetary system-wide breakdown caused by the government, it is probably preferable not to have the “thieves” watching over your money. In the history of United States, President Roosevelt confiscated gold from US citizens. In the name of protecting the power of States, the government can declare any sorts of national emergency or for any security reasons to physically confiscate your assets, or pay you with more worthless dollars for your real assets at a discounted price, or tax you so heavily either for holding or trading (currently 28%) to practically extract all the asset values that you have. There will be nothing that you can do against a much bigger power that is trying to protect its own survival. Confiscation of gold has happened before, and no one can be sure that it won’t happen again. In time (hopefully it will never come), before things start to go crazy, one should convert paper assets in the form of these ETFs & stocks into real physical assets.

There are many many metal stocks, and I will suggest that you should try the bigger market cap first. Bigger companies almost always have less upside, but also have less risk too. You still should have probably more than 5 stocks, or at least have 3 different stocks for sufficient diversification, assuming that you don’t use mutual funds or ETFs.

For the base metals, here are the stocks that you can look into:

  1. Copper: PD, PCU, FCX (also a very good gold stock)
  2. Aluminium: AL, AA
  3. Nickel: N, NILSY.PK
  4. Steel/Iron: RIO, TS, MT, PKX, NUE, GGB, X
  5. Diversified metals: BHP, RIO, RTP, FAL (being acquired by N)

For silver, you can look into PAAS, CDE, SIL, SLW, BCM.V, SSRI.

For gold, you can look into ABX (not really recommended, due to its heavy hedge book), NEM, FCX, AU, GFI, GG, HMY, GLG, MDG, BVN, KGC, LIHRY, AEM, EGO, BGO, IAG, GOLD, RGLD, CBJ, AUY, GRS, VGZ, NXG, NG, NAK, SA, NSU, etc. There are indexes that you can use for your trading and investing references: XAU (Yahoo’s symbol is ^XAU) and HUI (^HUI in Yahoo). Please note that you can click on both indexes which are market cap weighted. And if you want to invest in gold stocks ETF, there are XGD.TO, or GDX (I got the weightings from billcara.com).

If you buy individual stocks, pay attention to the physical locations of the mines. The local currency exchange rates have screwed the performance of GFI, HMY, and PDG in the past. Right now, currency exchanges are helping GFI, HMY. Read my post on Intro to Investing in Natural Resources for details in the effect of currency exchange rates. And the most important thing about physical location is the political stability. KRY just got sacked recently because of politics. In general, geographic stability and diversity is very positive for the miners.

For precious metal mutual funds, you can get the list from the Yahoo’s fund screener. I personally hold GOLDX and TGLDX (historically a slightly more conservative holdings including moving to cash on sideline and sometimes have gold bullion). UNWPX is more aggressive, and seems very good to me, the choice by investmiddleway.blogspot.com. I personally considered seriously about VGPMX (too much energy-like, such as BTU and CNX), and BGEIX (over 7% in ABX, track XAU index most of the time), but didn’t make any purchases at the end.

From my personal investing experiences, I recommend everyone to use mutual funds and ETFs as their core positions in this precious metal sector, and mix & match using individual stocks for tailoring personal taste. For more active traders, they can use more ETFs as their core positions rather than mutual funds. My personal goal is to move to the following allocation, because I currently hold too many individual stocks, and my time is very limited for investing:

  1. Total of 5% to 15% in “physical” precious metals such as GLD, SLV, and/or CEF. Between gold and silver, I will probably allocate about 40% gold and 60% silver.
  2. The rest goes into equity market. I will probably have 25% to 35% in gold mutual funds, 30% to 35% in ETF (except that just having GDX may not be such a good idea), and the rest I will use individual stocks for tailoring.
  3. In the equity portion, I will probably allocate 60% to 75% in gold and 25% to 40% in silver.
  4. In the equity portion, I would like to allocate 65% to 75% to major producers, and 25% to 35% to mid/junior producers and/or exploration companies.

Obviously, the above is just a goal. It may not be possible to fulfill every criterion. Using ETF and stocks will be better for trading & tax, assuming that you don’t want to initiate separate short positions against your mutual funds. And it also depends on your size of portfolio. The smaller the portfolio is, the less flexibility you have. I would also advise a minimum of 5% of your total networth to be put into precious metal sector. Depending on how aggressive you are, or how nervous you are about $US depreciation, you could go to 15% to 20%. I would not recommend anyone doing what I am doing, currently having about 25% of my networth in precious metal. The primary reason that I can afford to do such allocation is that on a leveraged view of my networth, the precious metal allocation will drop to below 15% which is the true effective influence on my leveraged portfolio.

You can study more stocks in the Yahoo’s finance database for basic materials sector.

Great article. Two thoughts for those who want to invest at the high risk end of the spectrum:

1.some of the risk of futures trading can be reduced by using less (or no) leverage; and

2. options are available for some commodities.

I know that some people don’t like the precious metals because they say on average all you are doing is keeping up with inflation. A friend of mine quoted me a statistic that he heard at an investment seminar (I don’t know how accurate it is) He claimed that the buying power of an ounce of gold in 1890 was about the same as it is today.
I don’t know about all that but I do know that I agree with the poster in that owning a little bit of bullion is a good idea. At different points in history paper commodities have had problems. In Germany, between the wars, you couldn’t carry enough currency to the store without a wheel barrel. Regardless of such things, no matter where you are in the world, no matter at what point in time, an internationally recognized gold coin like the American Eagle still carries plenty of buying power.

I am a macro-economic investor. By that, I mean I tend to focus on sectors and macro trends more than individual companies. As far as I can tell, at least for the next several years, commodity is the place to be. Therefore, I’m putting my money into this sector. Bullion is one of the less volatile choices that you can consider.

As far as the age is concerned, one should normally diversify the portfolio for a balance of risk. It only depends on how much risk one is willing to take, and how much conviction one has.

As well, I think this is one of the better intro articles on the topic.
Also, you may want to couple this with an inflation-adjusted chart of the DJIA. And, a chart of the decline in purchasing of the “dollar” since the inception of the FedRes(1913) (today’s U$D is roughly = to a nickel in 1913).

The poster, above, that gave rise to this being the “season” of commodities, is spot on. There are cycles in investable assets, much like the four seasons of the year(in temperate climes). The “season” for “Paper”/ financial assets has passed. We are in in the “season” of “Things”/ Commodities.

I just posted this coment to another web site.

I’m an entrepreneur/business owner of numerous businesses for over twenty years myself (third generation in my family) and have always invested and secured my wealth in traditional means such as stocks, mutual funds, real estate and most importantly, reinvesting in my businesses and maintaining cash flow. After the last eight years of this and slowly watching everything stay stagnant if not loosing value I got fed up and very concerned and sold off my entire stock portfolio on 3/14. I’ve concluded that I want to invest into precious metals with these funds and I’m really a green horn in this area.

I’ve been heavily studying our economic and political situation over the last eight months to try to figure out what’s going on and what to do. Please correct me if I’m wrong, but our political situation seems to be the sole directive to investing as opposed to market conditions and stability of companies to invest in. I’ve discovered that Venezuela, Iran and Iraq are the three large oil producing nations that are not part of OPEC and ironically the same three nations that our government has problems with! In 1971 president Nixon repealed the ban on gold that Roosevelt placed in 1933 and convinced the world to remove all gold backing from their currencies, thus creating a limitless supply of cash and the hidden tax of inflation and the license for governments to grow by leaps and bounds. I’ve seen Lindsay Williams video on you-tube about Gull Island in Alaska (I will be reading his book soon). He says that Kissinger cut a deal with the OPEC nations to set the barrel price with the stipulation of them buying back our deficit through American dollars. The world bank and the IMF are the middle man here before the product reaches the refinery’s and retail markets. This whole scenario uses the cost of a limitless supply of oil that we as consumers pay to be a tax to pay for our deficit through the bankers who hold our national debt. The limitless supply of oil is the backing of our limitless supply of fiat money. It seems to make logical sense as our unimaginable deficit could never be paid down with our income taxes as it now sits. If our taxes are to pay for the deficit, than logically, we should be paying ten times or more taxes! He also says that Iran has threatened to flood the markets with cheap oil. This would cause oil prices to go down which in turn would do three things, cause products to be cheaper, the dollar to gain value and gold to come down. This would be threatening to our government and the world bank, probably causing us to go to war with Iran to stop them from flooding the market with cheap oil. If we go to war with Iran, than I would assume that oil and gold would also go back up and the dollar down. If we do get into a war with Iran, it more than likely would cause our dollar to crash especially considering our current economic conditions both nationally and world wide and gold to run vertically up. If our dollar crashes, our government could reinstate the ban on gold to use it to back our currency and cause it to be worthless. Likewise, the central banks of the world could flood the markets at any time with gold and bring the price down. After all, they have a big stake in this with our deficit! It’s possible they could do this soon to get the stock market back up and get confidence in the dollar that they need to pay for oil. Does any of this make sense or am I crazy? Check out Lindsay Williams on the web and see his video. Let me know if what he says is true or could very possibly be true. In the meantime, I’ll be reading everything you have on your site and studying metals before I invest very soon.

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