The Brief Guide That Makes Trading Precious Metals Simple
You may have heard that investors often hold gold or other precious metals in their portfolios. But do you know why?
Trading precious metals is a way to hedge your portfolio in times of economic uncertainty. Precious metals are safe-haven assets that go up in value when assets like stocks and investment funds lose value.
Interested in investing? Read on to learn the basics of precious metal trading.
What Are Precious Metals?
Precious metals are metallic elements that rarely occur in the ground and are produced in limited quantities. They do not corrode or tarnish, making them ideal for use in jewelry and electronics. Traders have used precious metals as currency and a store of value throughout history.
While there are nine precious metals, investors tend to trade four of them:
- Gold
- Silver
- Platinum
- Palladium
The others aren’t produced or used in large enough quantities to make them worth trading.
Why Should You Trade Precious Metals?
Trading gold is the most popular choice among precious metal investors. Gold has been used to make coins and jewelry for millennia, and it still holds value today.
Investors buy gold when volatility in financial markets increases, or they expect inflation to rise. This is because inflation erodes the value of cash, while gold retains its value.
Trading silver is another way for investors to hedge against uncertainty. Silver has more physical uses than gold, including in electronics, solar panels, dentistry, and water purification. So investors can also trade the metal to speculate on industrial activity.
Silver is also cheaper than gold, offering an affordable alternative for investors.
Trading platinum is less common among individual investors. But platinum’s use in catalytic converters to reduce carbon emissions from cars is set to drive up the value in the future. Check out this resource to learn more about trading platinum.
How Does Trading Precious Metals Work?
There are several ways you can trade precious metals:
- Physical bullion coins and bars
- Mutual funds
- Exchange-traded funds (ETFs)
- Mining company stocks
- Futures and options contracts
You can buy and store metal bullion if you want to hold precious metals as a physical asset, although you must make sure to store it securely. Managed funds allow you to make passive investments, while stock, option, and futures trading requires active management.
What Drives Precious Metal Prices?
If you’re going to start trading metals, you need to be aware of the main factors that affect prices.
The main price drivers are:
- Demand and supply
- Economic uncertainty
- Industrial production
- Inflation
- Interest rates
Precious metals trade in US dollars on the international markets. This means prices typically rise when the value of the dollar falls. Investors hedge against the weaker dollar and demand for the metals from people buying them in other currencies rises.
Start Building Your Trading Portfolio
Trading precious metals can help you build wealth as part of a diversified investment portfolio. With the above information, you can get started today!
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