If you think gold is the best precious metal to invest in, think again. Gold is expensive, at $1,279 per ounce. Demand for gold jewelry in India and China is down, and Morningstar predicts the gold price will fall in the near future. If you are looking to diversify your investments away from stocks and bonds into precious metals, then check out the six best commodity investments.
Best Precious Metals to Invest In
Before you commit to a gold investment, consider other metals for your portfolio. Here are six precious metals you can invest in:
Silver, selling at $17.02 per ounce as of Oct. 24, 2017, is used for more than jewelry. Investing in silver might offer profit potential, should industrial demand grow.
The silver market was on a tear during the first decade of the century. In recent years, though, silver growth has stalled. The silver price peaked in April 2011 at $48.64 per ounce and has traded lower since.
Silver investors face the typical precious metals investments challenge: how to profit from price changes in silver. Before you buy precious metals, understand what will cause silver prices to move. Silver is challenging to understand, as it has characteristics of both precious and industrial metals. Although silver is less than 2 percent of the gold price, it is approximately 100 times more expensive than copper. Despite silver’s characterization as a precious metal, silver has many industrial uses, as well.
Silver is more subject to supply and demand constraints than gold. Its industrial applications link the metal to fluctuations of the global economic business cycle. So, will silver investing be profitable going forward? Silver proponents believe that silver’s industrial uses will push its price higher. With President Trump hoping to expand the U.S. infrastructure, silver could be in higher demand.
On the bearish side, as interest rates rise it could increase the cost of holding silver bullion.
Here are some silver funds to consider:
- iShares Silver Trust (SLV)
- PowerShares DB Silver ETF (DBS)
- Silver Miners ETF (SIL)
- iShares MSCI Global Silver Miners ETF (SLVP)
Like silver, platinum is also widely used in industry. Currently selling for $925.80 per ounce, platinum is trading at 27.6 percent less than gold. Until the late 18th century, platinum was considered a byproduct of gold mining, according to APMEX. Today, platinum is used as an industrial commodity, specifically in the manufacture of catalytic converters.
Earlier in the year, MoneyWeek recommended platinum due to a supply deficit and a price near recent lows. Should electric cars cut the demand for catalytic converters, however, platinum demand could decline, along with the price of your platinum commodity ETF.
A platinum investment could round out your portfolio’s diversification since precious metal stocks and mutual funds generally trade independent of the stock market.
Platinum funds to consider investing in include:
- Physical Platinum ETF (PPLT)
- Platinum Group Metals Ltd. (PLG)
- Ivanhoe Mines Ltd. (IVN)
Steel, an industrial metal, is predominantly used in building construction. Steel prices are driven by supply and demand as are many precious metal prices. The World Steel Association predicts global steel demand will reach 1,622.1 million tonnes during 2017 and 1,648 million tonnes in 2018. China is one of the largest steel users in the world, and thus steel prices are disproportionately impacted by China’s use of the metal.
There are many steel companies in which to invest. The largest steel company in the world is ArcelorMittal (MT) with a $31.552 billion market cap. For active investors, MarketWatch suggests swapping your gold stocks for steel as steel is trending upward. In October 2017, VanEck Vectors Steel ETF beat its gold rival, VanEck Vectors Gold Miners ETF, rising 5 percent versus the gold fund increasing just 0.5 percent.
For exposure to steel, consider investing in the top steel exchange-traded fund, Van Eck Vectors Steel ETF (SLX). Unlike typical commodity investing, SLX offers a 0.95 percent dividend.
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Aluminum is one of the world’s most plentiful metals, after only oxygen and silicon. Aluminum is found in diverse products because of its malleability and ability to withstand corrosion. You will find aluminum in vehicles, aerospace, power and transmission lines, television, furniture and kitchen items.
The aluminum investment forecast is bifurcated. Macquarie and Harbor Intelligence are pessimistic about aluminum prices in 2018, and Goldman Sachs is more positive. Goldman Sachs predicts the deficit in the aluminum market next year to grow from the current 235,000 tonnes to 373,000 tonnes in 2018. Thereafter, Goldman expects a turnaround and a surplus of 34,000 tonnes in 2019, as reported in News.metal.com.
Futures and options are one route to investing in aluminum. Or you might buy an exchange-traded note that tracks an index of aluminum futures contracts. There are also aluminum-related stocks and an ETF that includes mining and aluminum production companies.
If you’re considering trying your hand at investing in precious metals and think aluminum might be poised for an increase, consider these aluminum exchange-traded funds:
- iPath Bloomberg Aluminum Subindex Total Return ETN (JJU)
- iPath Pure Beta Aluminum ETN (FOIL)
Copper is considered an important precious metal due to its similarity to more expensive metals such as silver and gold. Copper is ductile, malleable, and conducts heat and electricity well. Despite those similarities with more expensive metals, copper is priced lower and used more extensively across industries. Copper is invaluable for wiring, plumbing, circuit boards, HVAC systems and telecommunications equipment.
Goldman Sachs is bullish on copper, despite a 27 percent increase so far this year. The copper analysts predict the metal to reverse its surplus and expects a 2018 deficit. There are several investment approaches, from investing in copper bullion, copper antique coins, copper mining companies or funds.
Copper funds to consider for investment include:
- iPath Bloomberg Copper Subindex Total Return ETN (JJC)
- United States Copper Index Fund (CPER)
- iPath Pure Beta Copper ETN (CUPM)
When browsing for the best precious metal to invest in, don’t overlook palladium. This commodity might not have the glamour of investing in gold bullion, but it’s used across industry and typically at a lower price than platinum. Other advantages of palladium over platinum are that it’s softer yet remains ductile and resistant to rust. You might find palladium in your next dental crown or in your vehicle autocatalyst, to prevent excess emissions.
Palladium has investment potential if investors turn from fiat currencies and the U.S. dollar. Palladium might also be an inflation hedge or as a strategy to play the growing auto industry demand.
What are precious metals or palladium ETFs? The primary palladium ETF is the ETFS Physical Palladium Shares (PALL) that holds real palladium, stored in secure vaults.
Investing in Precious Metals Is Best for Risk-Takers
Ultimately, investing in commodity ETFs is not for the faint of heart. Like most riskier investments, if you want to add precious metals to your investment portfolio, keep your eye on the price history, global economic environment and allocate a small portion of your money to these speculative financial assets.
All prices are accurate as of Oct. 24, 2017.