When investors think about defensive assets, gold immediately comes to mind. For centuries, gold has served as the ultimate store of value—portable, divisible, and universally recognized. But in the 21st century, a new category of metals has emerged that may offer even more compelling investment characteristics: strategic metals.
The Problem with Precious Metals
Gold is a mature market. Central banks hold massive reserves. ETFs provide easy exposure. Futures markets allow leverage. The asset class is well-understood and efficiently priced.
This efficiency is a double-edged sword. While gold remains a solid store of value, the opportunity for outsized returns has diminished. Gold moved roughly sideways from 2011 to 2019. Even its pandemic-era surge was modest compared to risk assets.
More importantly, gold's industrial applications are limited. About 50% of gold demand comes from jewelry, 25% from investment, and only 10% from technology and industry. Gold is valuable because we collectively agree it's valuable—not because the modern economy depends on it.
Enter Strategic Metals
Strategic metals—gallium, germanium, indium, rare earths—share none of gold's limitations. Every smartphone contains gallium arsenide chips. Every fiber optic cable uses germanium. Every electric vehicle motor relies on rare earth magnets. These aren't speculative technologies; they're the backbone of the current global economy.
Key Statistics
Supply Chain Vulnerabilities
The investment case for strategic metals rests on a simple observation: demand is growing, supply is constrained, and concentration creates geopolitical risk.
In July 2023, China announced export restrictions on gallium and germanium. Prices spiked immediately. This wasn't the first time—China restricted rare earth exports in 2010 during a diplomatic dispute with Japan, sending prices up 10x.
Western governments are scrambling to respond. The US CHIPS Act, EU Critical Raw Materials Act, and similar legislation aim to build alternative supply chains. But these efforts will take years to materialize. You can't build a rare earth processing facility overnight.
The Investment Case
Strategic metals offer several advantages over traditional precious metals:
- Industrial demand: Prices are driven by real consumption, not sentiment.
- Inelastic supply: Most strategic metals are byproducts—you can't simply "mine more."
- Geopolitical optionality: Supply concentration creates event-driven upside.
- Inefficient markets: No futures, limited ETFs, less institutional coverage.
How to Invest
Unlike gold, strategic metals lack developed financial markets. There are no gallium ETFs. No germanium futures. This creates barriers—but also opportunities for those willing to invest directly in physical metal.
Direct ownership of physical strategic metals offers:
- Pure exposure to commodity prices
- No counterparty risk
- Tax advantages in some jurisdictions
- SDIRA eligibility (strategic metals are not "collectibles")
Risks to Consider
Strategic metals are not risk-free investments:
- Illiquidity: No public market means selling takes effort.
- Storage costs: Physical metals require secure storage.
- Technology risk: Substitution could reduce demand.
- Supply response: Eventually, new capacity will come online.
Conclusion
Strategic metals represent a compelling addition to alternative asset portfolios. They offer industrial demand, structural supply constraints, and geopolitical optionality. While they require more effort to acquire and hold than gold ETFs, the potential returns—and the portfolio diversification benefits—make them worth serious consideration.