Investing in Copper Bullion: Benefits to Diversifying in Copper
In one of the most exciting turn of events after the great 2008 crash of the stock market in the United States, there was a run-up in commodities.
We're not just talking about coffee, sugar, pork or beef, we're talking about precious metals and industrial metals as well. One thing that was very interesting was that the Chinese government started hoarding copper. Copper prices started crashing and all of a sudden the Chinese government started buying tons of copper on the spot market.
This obviously jacked up the price of copper. It goes to show you that when it comes to diversifying your investment portfolio for your self-directed IRA, you should focus on investment candidates that are not so obvious. When it comes to diversification plays, gold and silver are obvious.
When it comes to investing in real estate, the appreciation pattern and the reasons are obvious. However, if you really want to beat the market and also if you want to inject a lot of healthy alternatives to your overall investment portfolio, you should focus on copper bullion.
Benefits of Copper as an Investment
Here are the reasons why you should take a look at this often neglected industrial metal.
Copper's industrial usage
It's very easy to look at copper, tin, lead and other metals as the lower value step brothers or step sisters of gold and silver. It's very easy to look at them and neglect them. After all, they are just industrial metals. There's nothing sexy about them.
However, you have to remember that industrial demand for copper is zooming up. Why? Very simple, as more and more people use gadgets, as more and more people use electronic equipment, there's a demand for electric wiring, electronics components, electronic parts.
Most of these are made of copper. Why? Copper is an amazing conductor of electricity. While there are more stable and faster conductors when it comes to price and reliability, few other metals come close to copper. This is why you have cooper lines running through your home to deliver telephone signals and electricity.
As the global population increases, people buy homes. They need places to live. These places need wiring. As more and more people use communication devices, the centralized locations of these communication systems need wiring. Whenever you need wiring, you need copper. It all goes back to copper.
It's such a high demand that the industrial use of copper is pushing its baseline price up as the global population increases. In a very real sense, copper, like precious metals, can be used as a hedge against inflation. In the same way as land has an infinite amount, there's only so much copper you can get out of the earth. This is why it will always have a brake against inflation and artificial surges in the amount of money in circulation. In a very real sense, copper bullion could act as an inflation hedge.
A volatile commodity market means greater opportunities
Unlike gold and silver that tend to go up in value in terms of surges and dramatic economic movements, industrial demand for copper bullion and copper in general has a certain level of volatility. Many people have turned off by volatility. Many people think that they can lose their shirts if they are dealing with a volatile market. Well, that's one way to look at it.
The other way to look at it is if you are making money from the up and down movements of particular commodities like copper bullion. You can actually make more money with a volatile market than in a stable market. Why? In a stable market, the price of copper bullion only goes up one way, and you make all your bet going that way, but it can come slowly.
However, with large amounts of volatility, you can make money on copper bullion as the price of copper goes down and as the price of copper goes up. Thanks to the huge industrial demand for it and the huge number of buyers for copper products like copper bullion and copper wiring, and copper ore, there are a lot of fluctuations. This volatility can make you a lot of money, especially if you trade in the commodities options market.
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Predictable crash-recovery patterns
Investing in copper bullion makes sense if you like predictability. Just like with any commodity, there is a predictable pattern for copper bullion and other industrial commodities. Why? When there is a crash, there is a recovery. When there is a recovery, it reaches a high point and then there's a crash.
There's this predictable pattern and the good news is that you don't have to wait for the crash to happen or for the surge to happen, you can make money with the up and down motion of the price of copper bullion and copper ore in the market. This momentum trading, this trend trading can pay off quite well especially if you are dealing with a fairly huge volume. Instead of waiting for the price of copper to appreciate maybe five percent over a longtime horizon, you can make money several times over when it goes up one percent, down one percent and so on and so forth.
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Increasing Consumer Demand in Asia For Copper
China and India have rising demands for copper and copper bullion. Copper is a very lucrative industrial component and as these economies further industrialize and grow, their need for copper will continue to go up.
This demand is based not just on the fact that China and India would export this copper back in finished industrial goods and for domestic purposes. Banking on this demand, it makes all the sense in the world to invest in copper bullion and other copper-based investments.
Not only do you get to play the fluctuation of the price as it goes up, or as it goes down, but you can gain a certain measure of peace of mind that the value of your copper bullion will be over a certain base value because of the increasing consumer and industrial demand in Asia.
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