An Introduction to Metals Trading

Precious metals such as gold and silver are popular trading instruments. Gold and silver have been exchanged for goods and currencies throughout history, and nowadays investors are attracted by the advantages of online metal trading .

Learn about trading gold and silver, what affects their value and the benefits of trading these precious metals.

Gold and silver are considered as safe-haven assets

Unlike the currency markets, gold and silver prices are rarely affected by political and economic events. When banks and money are considered as unstable, gold and silver are considered safe-haven assets and are commonly used to hedge against volatility in the US dollar.

Silver is used to hedge against volatility

Silver is another popular metal and is used to hedge against volatility in the currency markets.

In contrast to gold, the price of silver moves between its perceived role as a store of value and its role as an industrial metal. Because of this, price fluctuations in the silver market are more volatile than gold.

What affects the price of precious metals?

Different factors affect the price of precious metals.

Supply and demand

As with all products or services, a shortage of precious metals makes them more valuable. For instance, if a strike at a major gold mine disrupts production, gold prices could increase over the short term. On the other hand, an improvement in mining equipment could have the opposite effect by speeding up production and saturating the market. This will push prices down if demand remains constant.

Economic uncertainty

During times of economic and political instability, precious metals are traditionally viewed as safe havens due to their lasting value.

Industrial output

Precious metals have a big range of industrial uses, including in the manufacture of automotive parts, medical devices, electronics and jewellery. As demand for these goods grows, the demand for precious metals also increases.

Strength of the dollar

As precious metals are dollar-denominated, they are particularly affected to fluctuations in the value of the US dollar. When the dollar falls, precious metals are a good place to store USD which means it is likely to push the price of precious metals higher.

Interest rates

Precious metals provide a preferable alternative for fixed-income investors, whose investments offer a lower return when interest rates are cut.

The benefits of trading precious metals

Protection against inflation

Gold is a proven long-term hedge against inflation. This means that over the long term, gold may be able to provide returns that are higher than inflation.

Ability to go long or short

With CFDs (Contract for Difference), you can speculate on price movements in either direction. Therefore, you can go long or short, with the potential to benefit when the markets are going up or down.

Diversification

Precious metals provide an effective means of diversifying a portfolio. Gold is especially popular because of its status as a reliable metal to hedge against US dollar volatility or high inflation.

High liquidity

The main advantage of investing in precious metals such as gold and silver is the high liquidity. There are always keen buyers when it comes to selling precious metals so this means you can sell gold and silver relatively easily.

Flexible leverage

Leveraged trading allows traders to open a larger position with less capital in order to gain greater exposure to the asset. Leverage can magnify potential profits, but at the same time it can magnify losses.

Are gold and silver good investments?

Gold and silver are considered as good investments, especially gold which is known for its safe-haven status. Also, both metals provide protection against inflation and have low or negative correlation to other asset classes like stocks. In addition, both gold and silver are considered to be good portfolio diversifiers.

DISCLAIMER: This information is not considered as investment advice or an investment recommendation, but is instead a marketing communication