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Basics of Precious Metals Trading

Basics of Precious Metals Trading

*OspreyFX would like to state that traders should research extensively before following any information given hereby. Any assumptions made in this article are provided solely for entertainment purposes and not for traders to guide or alter their positions. Please read our Terms & Conditions and Risk Disclosure for more information.

Since the dawn of time, some metals on Earth have been considered noble. As such, it is not surprising that communities and civilizations placed value on such commodities and used them for trade. The most popular precious metals you have certainly heard of are gold and silver.

Historically noble metals have been the cornerstones of currency and a symbol of wealth. Nowadays, those interested in the world of trading can’t ignore these metals. Often financial advisors recommend that traders and investors diversify their portfolios to minimize risk. Therefore, it can be beneficial to invest in commodities and in particular precious metals as these may not fluctuate in value as much as the rest of the market.

Indeed, because of their utility and rarity, precious metals are considered a safe investment that withstands economic instability.

However, even if you are convinced and willing to invest in this precious commodity, you must first learn more about it. This article provides a basic overview of the what and how of trading precious metals.

Precious Metals Are a Commodity

Let’s start at the beginning. For precious metals, this means understanding what they actually are. In fact, gold, silver, platinum, and others are commodities. Brokers who trade in commodities often trade in futures. However, there are independent brokers that specialise in the trade of physical precious metals. Which brings us to our next point, what kind of metals fall under the category of noble metals?

Types of Metals

Precious metals are elements that occur in nature and are somewhat rare to find or difficult to extract. Some of their properties are also unique. These factors contributed to the value placed in them throughout history. You probably know gold and silver from their use in jewellery and decoration. However, precious metals are also utilized in manufacture and industry. Their price in the market varies according to the supply and demand across many sectors. Here is a breakdown of the most common precious metals favoured by investors:

Gold

Originally used as a type of currency and in jewellery, the chemical properties of gold make it an essential component in electronics and dentistry. It is in fact a unique metal: its durability, malleability, and conductivity make it an all-out attractive element. People consider gold as an asset with a sure value. That’s why it trades primarily based on sentiment. Data shows that times of instability and uncertainty bring an increased desire for gold. Several reasons cause a sudden spike in the demand for this treasured metal: inflation, systemic financial problems, political turmoil, and war. In general, any type of severe crisis leads to a renewed interest in gold.

Silver

Silver has a lot of industrial uses. Therefore, it is more susceptible to price fluctuations. The value of silver is perceived in correlation to its role as an industrial metal. Thus its price often moves with innovations. It is often a go-to choice for novice investors in precious metals. From batteries to appliances, to medical tools, the application of silver is varied and well anchored in the tools of our daily lives.

Platinum

Because of its rarity, little platinum is extracted from the ground. Much less than gold and silver. Aside from its use in decoration, the automotive industry utilizes platinum in catalytic converters, and it is also much needed in the tech and chemical sectors.

Palladium

Just like Platinum, the rare metal Palladium is primarily used to make engines and as a component in chargeable electronics. But you most likely know it from its coupling with gold in jewellery to produce white gold.

Basics of Precious Metals Trading

Why Invest in Precious Metals?

Looking at examples from history, precious metals have remained valuable and relatively stable throughout the darkest economic crisis. Whilst we can’t predict the future of the economy nor any catastrophic event, we can prepare by investing in sure values. Another benefit of precious metals is they are not affected by inflation. There is a limited quantity to be extracted from the earth and we can’t create more of it. At times when the US dollar weakened, precious metals acted as a hedge. There are many good reasons to invest in precious metals, and novice investors should always seek to diversify these investments.

How to Invest in Precious Metals

Identify your goals and determine your expectations from investing in precious metals. Whether your goals are short-term or long-term, there are several ways to benefit from metals. Here are some of the ways you can invest:

Exchange-traded fund (ETF)

These funds track a commodity or index and represent a security on the investment. Therefore you can profit while others purchase metals.

Gold or silver stocks

This is an investment in the companies that mine metals, rather than the precious metals themselves. It is an indirect investment in the market.

Precious metal IRA

Your purchased metals are kept in a bank vault, so you can benefit from owning them without the worry of storing or transporting them.

Physical metals

Buying physical metals in the form of coins or bars provides you with a tangible asset. If you have a way to store them safely, it is a good option to accumulate wealth in the long-term.

The Bottom Line

As the old saying goes, never put all your eggs in one basket. It is always good practice to diversify your investment portfolio. And if you are looking for an asset with a value that has historically proven to maintain its value, precious metals are a good choice. They are also a good hedge against inflation. However, while it is the most popular, gold is not the only precious metal out there. Silver, platinum, palladium, and others are all commodities you can learn more about and leverage in your investments. As in all financial endeavors, to achieve success you must consider your goals and assess the risks involved before making a move.

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