Should I invest in metal exchanges rather than in resources stocks?

Nick Sundich Nick Sundich, September 22, 2023

If investing in resources stocks (particularly junior explorers) is too risky, another option is investing in metal exchanges.

But is this a better option?


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What are metal exchanges?

Metal exchanges are physical marketplaces where traders can buy, sell and trade metal commodities. Metal exchanges provide a platform for all parties involved in the metals industry to buy and sell raw materials, semi-finished products and other related items.

Commodity prices on these exchanges are typically what is being alluded to when you hear terms like ‘copper prices’. Granted, there are exemptions – such as with gold where investors are alluding to gold futures.

The 4 most famous metal exchanges around the world include:

  • The London Metal Exchange (LME), located in London, England: Established in 1877, the LME is one of the world’s oldest and largest metal exchanges. It is home to more than 100 different metals, including copper, aluminum and zinc, as well as a variety of other products.
  • The Tokyo Commodity Exchange (TOCOM), located in Tokyo, Japan: TOCOM was launched in 1984 and currently offers more than 90 different metals, including nickel, copper, zinc and aluminum. It is one of the largest physical metal exchanges in Asia.
  • The Shanghai Futures Exchange (SHFE), located in Shanghai, China: SHFE was launched in 1999 and serves as an important platform for Chinese traders to buy/sell metal futures contracts. Its products include copper, aluminum and zinc.
  • The Chicago Mercantile Exchange (CME), located in Chicago, Illinois: CME is one of the largest metal exchanges in North America, offering more than 50 different metals including gold, silver and platinum. It also offers futures contracts on a variety of other commodities.

These four metal exchanges are some of the most important and influential in the world, offering traders a wide variety of metals to choose from. They provide an efficient platform for buyers and sellers of metals around the globe. In addition, they also serve as important indicators of economic performance, enabling investors to track price movements in metal markets.

Why you might consider investing in metal exchanges

The global demand for metals has been steadily increasing over the past few years, owing to the rising need for industrial materials, construction materials and consumer products. As a result, metal exchanges have become increasingly important in facilitating international trade.

Metal exchanges offer a great way for investors to diversify their portfolios.

By providing access to markets around the world, metal exchanges allow traders to gain exposure to different metals, take advantage of global price movements and do both without having the risk that comes with individual companies and their individual projects.

The advantages of investing in metals through an exchange is that investors can take advantage of the liquidity and price discovery mechanisms available on these exchanges to trade their commodities quickly and at a competitive rate. Additionally, metals exchanges are regulated by government bodies, so there is transparency and oversight when it comes to trading. Furthermore, these exchanges offer investors a range of products such as derivatives, futures and options that can be used to hedge their investments.

The downside of investing in metals through an exchange is that they may require higher fees than other markets, such as individual resources stocks or ETFs. Additionally, the exchanges have certain requirements for order types and minimum trading sizes, which may not be suitable for all investors.

But should you do it?

For most ASX retail investors, we think metals exchanges would be too complicated given daily volatility of commodities and forex risks.

Instead investors wanting broad exposure to commodities should consider ETFs – both those directly exposed to commodity prices as well as those that invest in a portfolio of stocks.


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