How to (Wisely) Invest in Copper and Other Base Metals

Wouldn’t it be great if there were a way to totally diversify a metals portfolio by adding base metals like copper (pictured above in natural form), aluminum and tin to the mix?

Copper, nickel, titanium and lead (yes, lead) have been getting a lot of attention recently from everyday investors. For reasons that no one really seems to understand, non-precious metals (also known as base metals) have developed a huge following in the past several years.

Precious metals enthusiasts have been following the daily prices of gold and silver for decades, so why the big surge in the so-called “base” metals? I checked out all the big online metal sellers and discovered that many are now offering copper and a few other base metals alongside gold, silver and platinum. What gives?

A few hours of Internet research later, I came to an interesting conclusion: base metal investing is taking off because just about anyone can buy a boatload of base metal bullion for only a few dollars. So how does an average investor make a profit on something that costs a few dollars per pound (that’s “pound,” not “ounce”), is difficult to store and harder to resell than John Tesh CDs?

The Facts and Myths of Base Metal Investing

As that crew-cut guy named Ross something used to say, “The devil is in the details.” But in the case of base metal investing, the details are actually quite interesting.

Digging into information resources online, I found out right off the bat that base metal investing is not for everyone, but those who have “metal-investing fever” will probably want to give the idea a try after reading the facts I uncovered. Here’s the lowdown on investing in popular base metals:

The curious case of copper collectors: Copper is the best choice for base metal enthusiasts who want to hold physical metal as an investment. Believe it or not, one of the most common ways people are doing this is by acquiring massive amounts of pre-1982 pennies. Sites like eBay, Amazon and Craigslist are popping with copper penny investors. (Pre-1983 pennies contained much more copper than those minted afterward).

The thinking goes like this: Coins are legal tender and have a stated value anyway, so there’s no big loss if the price of copper goes down. But at current prices, a pre-1982 penny contains approximately 1.72 cents’ worth of copper at “melt value.” Note: it is illegal to melt US coins and sell the bullion but that fact does not deter copper investors.

Today, as of early May 2017, you can buy $50 worth of pre-1983 pennies by the bag for about $80, which is slightly below the actual value of the copper in the coins. Recently, an eBay seller unloaded $5,000 worth of pre-1983 cents for $7,500. If you’re doing the math, then that means he sold $8,600 worth of copper at a $1,100 loss.

It sounds funny that people are selling pennies for profit, or loss. It also seems like a Twilight Zone episode plot that someone paid $7,500 for just $5,000 face value in legal tender US coinage. Such is the incredible world of base metal bullion trading.

Buying copper bullion bars: If you don’t want to worry about your neighbors calling local “health” authorities when they learn that you have a VW Microbus full of pre-1983 pennies in your garage, perhaps copper bullion is the way to go.

With today’s price of copper hovering at about $2.60 per pound, you won’t find any bargain basement deals online or in person (via local Craigslist sellers). About the best you can do is buy large copper ingots (10- and 20-pounders) at approximately 50 percent markup. That translates to about $40 for a 10-pound slab, the most commonly sold copper ingot on the subterranean base-metal market.

True story: I recently saw a Craigslist posting in Phoenix, Arizona, that offered a 100-pound copper ingot for $300, a steal at just a 15 percent markup. The problem with most base metals is illustrated perfectly by this example: you need to acquire too much of the stuff. Try putting a 100-pound chunk of copper in a safe deposit box. Not gonna happen.

Titanium, zinc, lead (yes, lead) and nickel are some of the other base metals popular among the physical acquisition crowd. They unfortunately all suffer the same ills as copper: storage, liquidity and huge markups when you are lucky enough to find large quantities.

And yes, nickel coins are going through the same routine as pennies. People are already selling huge bags of nickel coins online, and business is brisk. For base metal enthusiasts who want to avoid the mess and inconvenience of bars and ingots, perhaps the penny-and-nickel route is a smart way to go.

Stocks, ETFs, etc.: When it comes to base metals, many investors prefer to buy stocks or ETFs that are completely or partially based on the daily price of the metal itself. Whether you’re looking to profit from price increases on nickel, copper, titanium, zinc or lead, there are hundreds of mining and ETF products available for investors who want into the base metals game.

If the stock/ETF route is your preference, check out some of the more popular metal-related instruments like DBB, a base metals fund that tracks a large basket of metals, JJC, a Bloomberg Copper Index fund, CPER, a standard US copper index, and RJZ, a multi-metals fund that tracks several base metals worldwide.

A good economy is good for base metals: Base metal investors, whether penny/nickel hoarders or those who buy paper assets like ETFs, live by one rule of thumb: when the economy is doing well, base metal prices tend to rise. That’s because nearly all base metals are used in light and heavy industry. It only makes sense that when manufacturing is steaming along at a healthy clip, then the economy is in good shape.

Lead: Just to prove that you can buy (or sell) just about anything, consider the case of eBay, where multiple merchants are selling 1-pound lead ingots for $5 a pop, plus $6 for shipping! The five-year price chart for lead informs us that the humble base metal fluctuates between 80 cents and $1.20 per pound, currently standing at $1.01 per pound. (Note to self: “Start a lead-selling business on eBay. Retire to Tahiti next month.)

Making the Decision to Invest in Base Metals

If you are one of the millions of investors who have already taken the base metals plunge, let us know how you fared by leaving a comment below and/or leaving some feedback on our Facebook page. We’d like to hear about your experience in this new wrinkle of the metals market.

If you have not yet delved into the likes of tin, copper, zinc and nickel, be careful and be sure to do plenty of research on your chosen “element” before plunking down hard-earned cash on a ton of copper, a hundred kilos of titanium or a thousand pounds of lead. That’s a lot of paperweights, even at bargain-basement prices!

Happy investing, and don’t forget to let us know about your experiences, good, bad or in between.

Click here to add a comment

Leave a comment: