With gold soaring, should advisors seek a cheaper alternative in copper?

Sure, it glitters less than gold and silver, but copper and copper ETFs could provide upside and diversification for advisors seeking commodity exposure.  

The price of gold continues to achieve new highs as both the promise of rate cuts and the perils of geopolitics rise. At last check, the yellow metal traded at more than $2,160 per ounce, up nearly 5 percent year-to-date and up more than 18 percent in the last 12 months.

Silver, which is considered a monetary and industrial metal, is up around 3 percent so far in 2024 and more than 20 percent over the past year.

Spot copper, meanwhile, is only up 1.5 percent year-to-date, and is down about 3 percent in the past year. Does that make it a bargain for commodity shoppers?

“You're seeing more demand coming out for copper across the globe,” said Ed Coyne, senior managing partner at Sprott. “And supply is trying to meet that. The problem is that as you get new discoveries, from discovery to extraction to production, it could be a decade or decade and a half. So we think that price discovery is going to continue to elevate over a full market cycle.”

Coyne said the big driver of copper prices going forward will be the transition to clean energy. Both wind and solar energy creation require increasing amounts of copper, especially for offshore turbine production. He added that electric cars, also a growth area, need two or three times more copper than gasoline-powered cars.

“Everything that's happening in the cleaner energy movement needs more copper,” said Coyne, whose ETFs track copper miners worldwide. The Sprott Copper Miners ETF (COPP) offers exposure to established copper mines, while the Sprott Junior Copper Miners ETF (COPJ) tracks more speculative miners in early-stage development and production.

Speaking of ETFs, Chirag Chauhan, an LPL financial advisor and managing partner at Bluff City Advisory, typically invests in metals like copper through ETFs since a client can get liquidity while tracking very closely the price changes of the underlying asset.

“This is a great way to get exposure to the underlying asset class, without having to worry about custody or paying a middleman,” Chauhan said. “All this is covered under the expense ratio of the underlying fund, and it is only for a portion of a client’s portfolio to be used as a hedge, not a core position.”

One of the big worries holding copper prices back in recent years has been the performance of the Chinese economy.

China accounts for 55 percent of the total global copper consumption so the health of the Chinese economy is critical to the price of copper and most other base metals, said Phil Kosmala, managing partner at Taiko, an OCIO for financial advisors.

Prior to 2010, Chinese GDP growth consistently stayed above 10 percent. Since then it has progressively dropped. China's economic growth was in line with the country's roughly 5% goal last year but will lose steam in 2024 and beyond, getting as low as 3.4% in 2028, according to the International Monetary Fund.

Even if the economy slows in China, however, Coyne is confident that copper prices will bounce back.

“China is at the head of the curve on cleaner alternative energy, which requires a lot more copper. You could find yourself in an environment where the economy is slowing, but copper demand is continuing to rise,” he said.

Kosmala said copper prices have been range-bound since December as a result of concerns over China’s looming property crisis. 

“We typically invest in copper-related equities when China engages in massive ‘irrigation style’ stimulus efforts in order to engineer growth during economic slowdowns,” he said. “However, this cycle has been highly atypical. Despite property markets imploding and consumer confidence waning, Xi has been reluctant to repeat the infrastructure stimulus pattern of the past 25 years.” 

Because China has deviated from its usual stimulus approach, Kosmala said he doesn't own copper or related equities at this time. That said, he says the intermediate outlook for copper remains attractive “due to a decade-plus of underinvestment by mining companies and the global governmental push for EV production.”