Well, if people haven’t been paying attention to the U.S. policy on the dollar, it’s no secret that the administration is hoping for a massive decline in the currency to help pump up exports. With the Federal Reserve announcement that they are keeping rates low until late 2014, we all know that this means cheap money will be flooding into commodities as the dollar sinks.
What can you do? Several things are important to note. Yes, the first thing I’m sure you’ve thought of is gold, which I completely agree with. But I would also look to diversify your commodity exposure in other areas like copper. We’ve seen a strong move in copper from the bottom in October, up almost 30%, from approximately $3.00 to the current price of $3.88 per pound. But, with more money flooding the system, we could see last year’s copper highs of just over $4.50 reached and exceeded.
But is copper the right investment for you? Not necessarily, as there are a lot of mining companies that dig for copper and are very reasonably priced. One problem with just buying mining companies in the U.S. is that you are exposed to the dollar when it declines. If commodities go up, so should currencies like the Canadian dollar. A better trade would be to look for copper mining companies listed in Canada. This would give you a two-pronged attack: make money off higher copper prices through higher prices of mining companies and benefit from a higher Canadian dollar against a weaker U.S. dollar.
There are even penny stocks that fit all of these criteria. Amerigo Resources Ltd. (TSX/ARG) is a company that produces copper and molybdenum in Chile. If you thought that penny stocks are only firms that don’t have any real cash, you’re wrong! This copper producer has $0.20 cash per share, for a company whose share price is only $0.88. Since this stock trades in Canadian dollars, the further the U.S. dollar goes down, the more money you make.
Of course, penny stocks are one way to play copper mining companies. The advantage of many penny stocks is that you are getting direct exposure to copper at a low price, while bigger mining companies usually produce a mixture of commodities. Firms like Barrick Gold Corporation (TSX/ABX) produce copper, but a large portion of their production is gold.
The key is, when the central banks are stoking inflation, try to protect your assets by being out of U.S. dollars by investing in commodities and mining companies. These could be solid penny stocks or big, diversified mining companies like Barrick.
Until we see signs that the U.S. administration is changing its course on depressing the dollar and the Federal Reserve reduces monetary policy by raising rates, I would continue looking at the copper mining companies for strength as well as penny stocks in Canada.