Get Exposure to Metal Commodities in Your Investment Portfolio
Metallurgy and civilization go hand in hand. Man’s ability to form metals into useful commodities enabled him to develop modern society and civilization. As a matter of fact, human prehistory is classified by using a three-age system based on man’s ability to control metals: the Stone Age, the Bronze Age, and the Iron Age.
Societies that have mastered the use of metals in weaponry and tool making have been able to thrive and survive. Societies without this ability have faced extinction.
Similarly, investors who have been able to master the fundamentals of the metals markets have been handsomely rewarded. Gold, silver, and platinum can play a role in your portfolio because of their precious metal status, their ability to act as a store of value, and their potential to provide a hedge against inflation.
As a general rule, metals are classified into two broad categories: precious metals and base metals. This classification is based on a metal’s resistance to corrosion and oxidation: Precious metals have a high resistance to corrosion, whereas base metals have a lower tolerance.
Investing in companies that mine precious metals — or any other commodity, for that matter — doesn’t give you direct exposure to the price fluctuations of that commodity. You need to be familiar with the fluctuations and patterns of the equity markets to profit from this investment methodology.
You also need to consider any external factors that impact the performance of the company, such as management effectiveness, total debt levels, areas of operation, and other metrics that are specific to companies. That said, investing in the equity markets still gives you access to the commodities markets.