My Favorite Hard Asset Investment With Upside
My investment focus is real estate and other hard assets. When I’ve invested in stocks, I’ve mostly lost money. The problem for me with stocks is that you have to pay attention on a daily basis to each and every company in which you own shares. Hard assets make more sense to me for many reasons, including the fact that values aren’t likely to change by 10%, 20%, or even 50% or more in a single day, as they can for stocks, simply because some piece of bad news related to the company in question is circulated.
On the other hand, real estate is not very liquid. Even in an active market, it can take months to find a buyer and complete a sale. Metals – precious and industrial – are more liquid and don’t require the same capital commitment that real estate can. You can buy a fraction of an ounce of gold if you like. The premium on that piece of gold will be high, but the point is it’s an option if you don’t have enough cash to buy more.
On the other hand, gold and silver are typically seen as places to store your wealth rather than as investment vehicles. Prices of these metals reflect sentiment as much as anything else. Industrial metals, more specifically rare strategic metals are an exception. These can be both a hedge against inflation and an investment in a hard asset that has the potential to increase in value as consumption surpasses demand.
Rare strategic metals are used in every modern product you can think of, from iPads to cell phones, from flat-screen TVs to jet planes. They are “rare” because they are difficult to mine and are generally by-products of other mining operations. Mining them is dirty work…not environmentally friendly. Most mines producing these metals in Western countries have shut down due to the cost of complying with environmental guidelines and restrictions.
As most of these metals aren’t to be found on the commodities exchanges alongside gold and silver, prices are controlled by the supply/demand cycle rather than by investor speculation. A manufacturer who needs indium for his product is going to buy the amount of indium he needs no matter the price. The amount of indium needed for any single unit of production is so small that the effect on the final product price is insignificant.
What Metals Should You Be Looking At?
The metals in question include but are not limited to:
- Indium – used for LED screens, flat screens, cell phone displays, and jet engine bearings…
- Tantalum – used for capacitors for cell phones and cars, surgical instruments, and medical implants…
- Gallium – used for integrated circuits, lasers, fuel cells, and pharmaceuticals…
- Hafnium – used for electrodes, light filaments, and computer chips…
- Tungsten – used for light bulbs, welding, munitions, and jet engines…
The problem for the small investor is finding a way to invest in the metals directly, as, unlike gold and silver, you can’t simply call up your broker and place an order.
A group out of Europe has addressed this challenge. Tradium has created packages of different rare strategic metals that you can purchase as an individual investor.
Unlike some physical gold programs that require a minimum investment of US$125,000 or US$250,000, the lowest-priced basket is currently priced at around US$6,500. The highest-priced basket is currently selling for around US$23,500. And SMI will arrange for storage of your metals until you’re ready to sell (which is a good thing as these metals are sold in kilograms rather than the ounces that gold and silver trade in).
An investment in rare strategic metals doesn’t replace the need for some gold and silver in your portfolio as a hedge against currency crises. However, I see this new asset class as an excellent inflation hedge as well as a play on the continued growth of the global economy. With stocks, you have to decide which company in which country will do well. An investment in rare strategic metals doesn’t depend on which products or which countries are doing well. As long as the products that use the metals are being made and sold, your asset value has the likelihood of increasing. That’s the kind of “sit back and watch” investment that makes sense to me.
For more details on the four different baskets of rare strategic metals currently available from Tradium, you can inquire here.
Lief Simon