We have discussed metal commodities briefly in the previous article. In this article, let’s understand trading metals in detail. Trading precious metals were only possible by wealthy investors in earlier days. But now, every retail forex trader gets to trade these metals with the advent of CFD trading. Hence, a lot of investors hold metals in their portfolios by investing a significant chunk of their money in metals. Metals create a balanced portfolio as they are considered a hedge against inflation. Metals such as gold and silver can be treated as safe-haven bets since their scarcity provides support to their value.
Gold – The highly traded metal
Among all the metals, Gold is the most actively traded metal. This metal possesses intrinsic properties such as durability, malleability, and conductivity. These properties offered by gold account for its superiority. They also find their primary use in jewelry making. As with other commodities, forces of demand and supply determine prices of gold. The gold market is also influenced by risk parameters, market sentiment, and inflation trends. Investors turn to gold and invest heavily when there are signs of a global economic slowdown. The slowdown could be due to reasons like recession, political crisis, or government debt.
Because of these reasons, Gold is mostly traded by long term investors. They only look for signs of gold entering a bull or bear market. The trend can be determined with the help of equity indices. A strengthening economy means weaker demand for gold.
Silver is seen as the best metal trading option right after gold. It has its own merits. This metal is used in various industries, making it more sensitive to business conditions and trading activities. Hence, the prices of silver are more volatile than that of gold. So we can say that silver is ideal for short term traders.
Platinum is also seen to gain value during times of economic and financial crisis. However, because of scarcity in the availability of platinum, the price is much higher compared to gold. Therefore it is less frequently traded. It still is a robust and safe-haven alternative, especially when the Gold is overbought in the market. The industrial use of Platinum is kind of similar to that of silver, making it price-sensitive to business conditions. In recent times, the demand for platinum in industrial usage is reduced by the increased use of catalytic converters.
You can trade metals with Forex brokers too
One of the important advantages of trading metals is that they give protection against inflation, which is not offered by any other financial instrument. Taking this into consideration, a lot of Forex brokers offer above mentioned precious metal trading against major currencies such as the US dollar, Japanese yen, Euro, Australian dollar, Canadian dollar, and British pound. You will also find metals such as Copper and Palladium on their platform. Some of the metal currency pairs include XAU/USD (Gold), XAG/USD (Silver) and XPT/USD (Platinum).
Even if it obvious, we must tell you that buying and selling precious metals do not mean the actual delivery of these commodities. We trade these metals over the counter (OTC). In this type of trading, there is high risk involved. So make sure you have a risk management plan in place, else there is a possibility of you losing all the money you have in your trading account. Some vital risk management tools include stop-loss and order cancellation. They will always protect the balance of your account.