Ken Roberts: Natural resources investing
Diversification is one of the best risk management tools that investors have. Most investors should have some exposure to natural resources as a part of their long term investment portfolio. There are different types of investments in the natural resources area and metals are one of them.
Typically, precious metals like gold and silver have a low correlation to stocks and often there is an inverse relationship between them. Money can flow into precious metals when stocks are in a bear market and investors are concerned about the economy.
Recently, precious metals have been performing in line with the stock market. The S&P 500 is near its all-time record high and gold and silver have had good performance numbers in the last year. As of Oct. 21, the ETF that represents gold, GLD is up 21.17% over the last year. The silver ETF, SLV has had a year gain of 19.78%. Platinum has also done well lately, PPLT, a platinum ETF is up 6.98% over the last year as well.
Bull and bear market cycles for precious metals can run over long time frames, gold hit its all time high in August 2011 at almost $2,000 per ounce, today it is just over $1,500 per ounce. Be cautious buying metals when they’re at or near an all-time high because they can fall into bear markets that can last for years.
Base metals can also produce good returns and can help diversify a portfolio. Normally, they perform best when the economy is in the early stages of an expansion. The copper index fund, CPER is down -3.62% over the last year as the economy has been cooling off a little. It does make sense that copper demand will be strong as people buy more electric cars and use more solar and wind power, though that could take some time.
Aluminum is down and one reason for that has been the trade war fears, that tariffs could have an impact on the consumption of aluminum for manufacturing. The aluminum ETF, JJU is down -15.40% over the last year. The tin ETF, JJT has dropped -7.90% in the last year. Nickel has been soaring recently as Indonesia is considering an export ban. The nickel ETF, JJN is up 32.22% in the last year and 53.43% on a year to date basis. Some metals funds are based on futures contracts and others hold the physical metal.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Get more information at 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.