Thursday, November 5, 2009

Why Copper, Why Now?

I began investing in precious metals in April, 2003, so I have participated in the current ongoing precious metals bull market with gratifying results to date. When I began to buy bullion, gold was available at $322 an ounce, while silver could be purchased for $4.50. In hindsight, I wish I had bought much more. But I loaded up the credit cards as it was. My gains till now have far exceeded my costs. Three cheers for the plastic carry trade.

I first wrote this piece on November 5th, 2009. Tonight, I dug it out of archive, since it raised some good points. I've spent a few moments modifying it, to bring it up to speed. It needed to be tweaked to reflect what precious metals have been doing in the last week. At the time this piece was originally written, from the time when I first purchased it, gold had appreciated 238%, while silver had gained 289%. Yet they were both outperformed by another metals commodity.

From July to September 2009, silver sprinted faster than Usain Bolt on performance-enhancing drugs. SLV, an Exchange Traded Fund, tracks the price of silver. And it sped from $12.50 on July 10th to $17.14 on September 16th. A phenomenal 37% gain in just over two months. But silver was tired and needed a breather.

It took a sixty-four day respite, consolidating within a channel bounded by a low of $15.82 and a high of $17.56. Now rested, it's off and running again. November 20th witnessed the beginning of a new race, one that has hurdled a major obstacle at $18.00. Silver broke through resistance at that level and is still running.

Almost every day, gold is flirting with nominal highs. GLD is one ETF that tracks the price of gold. July 10th marks the beginning of gold's most recent race as well. It left the starting blocks at $89.51, and as of November 20th has risen to $112.94. This spurt represents a 22% gain. Not as impressive as silver, but gold is a much larger market. It does not accelerate as rapidly - as does silver - with the infusion of new funds to lend impetus.

For several months, gold had done little more than move laterally. It made three attempts - none convincing - but failed to breach the thousand dollar ceiling. In light of that, its recent performance is rather remarkable. Watching gold is like having a seat at the Olympics and viewing the high jump. Will the competitor have the confidence to attain a height never before achieved? His personal trainer, Coach Gold Bug assures him he can do it.

As that athlete attempts to clear new heights, there are parties which wish to exert a gravitational effect and bring him back to earth. Profit-taking by nervous market timers, and short sellers trying to manipulate the price both take their toll. But their force is waning. The effect of their machinations accomplishs little more than to retard Gold's advance. And the bar just keeps getting raised, higher and higher.

Silver and gold are getting pricey, but they could have a lot further to run. "To the moon, Alice," as Ralph Kramden would have said. There may be more upside for both at present, but an equally likely scenario entails a sharp sell-off. In either event, I don't want to chase the price. There are cheaper opportunities to participate in the commodities boom that offer the same benefits as precious metals. Let me name one alternative.

What other asset class can you think of that could offer diversification to an invester seeking a contra-dollar hedge? Base metals came to my mind. In the last month I have begun to look into the merits of investing in copper. Aluminum, nickel, and lead show promise as well. But I prefer copper for its ease of acquisition.

Copper - reverting to the timeframe which represents my personal experience - gained 308%. It easily outdistanced its vaunted brethren. Most recently, however, copper remained quiet while its cousins were onstage showing off.

Investor's attention has thus been diverted towards silver and gold as a more acceptable mainstream form of bullion investment. Currently, consideration of the merits of accumulating copper bullion is recognized by few.

In contrast, my recent interest has resulted in an emphasis being placed on accumulation of pre-1982 copper pennies as a means of participating in any impending price advance offered by copper as a commodity.

This form of copper - cents as bullion - is presently unrecognized for the lucrative potential it offers. Copper cents are in stealth mode, flying under the radar. Thus cloaked, only the discerning investor will detect what lays beneath the veil. To my thinking, this anonimity represents one of copper's more compelling aspects. Those who are first to discover a lode gather the largest nuggets.

Copper offers small investors an opportunity to participate in a near-certain, robust appreciation in worth as the dollar continues its downward spiral. All tangible items will eventually reflect enormous price increases as the FED continues its policy of quantitative easing, flooding the markets with trillions of dollars in liquidity.

While it would necessitate the accrual of millions of pennies to represent a sizable $100,000 position in this form of bullion, this factor again contributes to the advantage of the small investor. Any individual, even those with only a pocketful of change, can begin to save copper pennies, and in time accumulate a sizable cache.

Considered by many a worthy goal, to become a member of the "one-ton club," would require only a commitment of approximately $3,000 and would certainly brand the initiate with respect within the penny-hoarding community. The many questions you might have can be answered - in sage fashion - by those more senior in learning. If you seek a mentor try visiting, an "all-things-copper-and-more" website for enthusiasts of the genre.

Copper has - in various societies throughout history- circulated as a form of coinage. For those visionary investors fearing the impending effects of hyperinflation, having a stockpile of coins could thus serve as an additional source of security. Such a hoard could well represent a store of value, which could continue to function as a medium of exchange. Copper is a recognizable form of money, useful for the purchase of goods and services in the event of a financial unraveling.

Copper offers the promise of future price gains as the economy recovers and homebuilding starts back up. As well, China's unremitting demand for copper places a floor on any retracements. The potential is thus quite evident for prescient, early investors in this niche market to profit handsomely as the dollar continues to depreciate. The value of copper bullion can only continue its climb in coming years, why not join me in its ascent? It just makes common cents.

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