Throughout the ages, mankind has always been fascinated by precious metals, having long been used as both a medium of exchange and a way to show wealth. Precious metals have quickly become very popular investment products within the commodity category. The most widely traded precious metals are Gold and Silver, with Platinum and Palladium also being quite popular.
Today, there are many ways you can trade precious metals. You can, for instance, invest directly through Gold bars or Silver coins. You can also invest in precious metals indirectly, through financial products such as Exchange-Traded Funds (ETF), Mutual Funds, Futures, or Contracts For Difference (CFD). With indirect trading, you can easily use the Internet to access the precious metals market. You can even take advantage of precious metal trading on mobile, through precious metal trading apps.
What are the most important fundamental factors to consider when trading precious metals?
Understanding the forces behind the changes in the supply and demand relationship is essential when investing in metals. Here are the 4 most important forces driving the price of the four main precious metals – gold, silver, platinum, and palladium.
Precious metals, especially Gold, are often seen as a store of value and a safe haven asset in times of uncertainty. In times of heightened geopolitical tensions, terrorist attacks, wars, natural disasters, or any other worldwide events that create instability, the price of precious metals tends to go up. Uncertainty, instability, and stock market volatility should therefore be monitored.
Value of the American Dollar (USD)
Many precious metals are priced in USD. Thus, precious metals have an inverse relationship with the Dollar. Every significant change in the value of the greenback is going to affect the price of the metals, which is likely going to impact the demand for precious metals. Central bank meetings, interest rate decisions, and changes in the US political scene should be closely followed.
Evolution of industrial use
Depending on their physical properties, precious metals can have different industrial uses. Changes in the use of precious metals in the industry can therefore impact the demand of these metals. Gold, for instance, is often used in electronics and in medical applications, while Silver is increasingly used in photovoltaic cells. Platinum and Palladium are especially common in the electronics sector.
Numerous metals are used by jewellers. Gold, Silver, Palladium, and Platinum are most widely used in jewellery creation – with Gold being the most widely used precious metal in the manufacture of jewellery.
In conclusion, there is a wide range of investment products you can use to trade precious metals nowadays and better diversify your portfolio. You just need to find the right financial solution for your trading style and strategy.
Understanding why precious metal prices move, as well as the use of tools like stop-loss orders and futures contracts, will allow you to better protect your capital and take advantage of the many trading opportunities of that market.