Precious metals trading: everything you need to know
Precious metals are as enticing for traders and investors as they are for jewellers and bankers. Learn everything you need to know about precious metals, including the different types and how you can take a position.
What are the different types of metals?
There are several kinds of metals that investors can take a position on. These are usually categorised as ‘precious’ or ‘base’. The most well-known precious metals are gold, silver, platinum and palladium, and the most well-known base metals are copper, lead, nickel and zinc.
What are precious metals?
Precious metals are rare, organically occurring, metallic elementals that have an inherent value. They don’t usually oxidise or corrode, and they don’t naturally tarnish. The main precious metals are considered to be gold, silver, palladium and platinum – which are all used in jewellery, but which also have a range of different applications.
Precious metals have been used for currency and jewellery throughout human history, and more recently, metals like gold are used in devices including iPhones and computer software. Some precious metals are seen as concrete stores of wealth during times of market uncertainty – known as safe havens.
What are base metals?
Base metals are common metals that will naturally oxidise, corrode or tarnish. Examples include copper, lead, nickel and zinc. These metals are used to make products such as copper pipes, or to make alloys such as nichrome – which is an alloy of nickel and chromium.
Copper is also a popular sculpture material, with icons including the Statue of Liberty getting its green hue from oxidised copper.
What are the different precious metals to trade?
There are generally taken to be four main precious metals to trade: gold, silver, platinum and palladium. These all have a range of applications, not just as a historical store of money or for their use in jewellery, but also in industry, electronics, medicines and as alloys.
Gold has been used in the production of expensive goods for millennia. Today gold is used in jewellery, decoration and – thanks to its conductivity – the smartphones and computers that we all use daily. It’s also the safe-haven asset of choice for many investors during times of market uncertainty.
Silver is a popular metal in industry, where it’s used for its conductive, anti-bacterial and malleable properties. These give silver a range of applications, including in batteries, dentistry and water purification.
Platinum in its pure form is used in jewellery and dental work. But, it’s also popular as an alloy – for example, the alloy of platinum and cobalt is used to make magnets. It’s also used in some chemotherapy drugs, particularly those that treat testicular and ovarian carcinoma, lung cancer and lymphomas.
Palladium is a congener with platinum – meaning the two metals share a common structure, origin or function. More than half of palladium’s supply is used in catalytic converters for cars, which are essential tools that convert harmful gases like carbon monoxide into nitrogen, carbon dioxide or water vapour.
How to trade or invest in precious metals
Trading precious metals
Trading precious metals means that you’ll be speculating on prices rising or falling with financial derivates like spread bets and CFDs. When you trade with us, you can choose whether you want to trade precious metal futures, spot prices and options.
You’ll be trading on these prices with spread bets and CFDs, so you won’t ever need to take physical delivery of the underlying assets – such as gold or silver.
Investing in precious metals
If speculating with spread bets and CFDs isn’t for you, then you can always invest in commodity stocks and exchange-traded funds (ETFs).
Stocks let you gain indirect exposure to precious metals by buying shares in the companies involved in their production and use. ETFs let you speculate on a diverse collection of assets in a single investment, and commodity ETFs – such as a gold ETF – will be set up to closely follow the price of that metal in the underlying market.
What affects the price of precious metals?
Supply and demand
As with any product or service, a shortage of precious metals – or an increased need for them – makes them more valuable. For example, if a strike at a major silver mine interrupts production, silver prices could increase over the short term.
An improvement in mining equipment could have the opposite effect, speeding up production and saturating the market – which would drive prices down, assuming demand remains constant.
In times of economic and political instability, precious metals are traditionally viewed as safe havens due to their lasting value. We saw this theory in action in 2016, when Donald Trump’s election to the US presidency caused gold to rally as nervous investors flocked towards its haven status.
Precious metals have a huge range of industrial uses, including in the manufacture of automotive parts, medical devices, electronics and jewellery. What’s more, new applications are continuously being developed. As demand for these goods grows, so does the demand for precious metals.
Strength of the dollar
Given that precious metals are dollar-denominated, they are particularly susceptible to fluctuations in the value of the greenback. When the dollar falls, precious metals are a good place to store USD – meaning it is likely to push the price of precious metals higher.
Precious metals offer a desirable alternative for fixed-income investors, whose investments offer a lower yield when rates are slashed. As such, Fed decision-making may guide investors towards these safe-haven opportunities, but the Fed’s impact on precious metals shouldn’t be overstated. Of more importance is how rate announcements affect the dollar.
Precious metals generally perform better in a rising-inflation environment. This is because quantitative easing – or money-printing – dilutes the value of the currency in circulation, and makes it more expensive to buy assets which are viewed as a reliable store of value.
Are precious metals a good investment?
Precious metals are regarded by many investors as a good investment – particularly gold, which is known for its safe-haven status. Investors will often move their money into gold during times of market uncertainty and because of their applications in jewellery, electrical components, car parts and industry, precious metals are usually in high demand.
To start trading precious metals, you’ll need a spread betting or CFD trading account and you’ll need to decide whether you want to trade precious metal futures, at spot or options. You can create an account with us, and you’ll also get access to our educational resources such as IG Academy, plus you’ll be able to trade on our award-winning trading platform and mobile app.1 We offer in-platform technical indicators and risk-management tools, as well as news and analysis directly from our team.
Alternatively, you can invest directly in the shares of companies that produce precious metals with a share dealing account. This will give you exposure to the supply of precious metals, as well as to the ways in which they are used. Plus, with a share dealing account, you’ll be able to invest in ETFs which are designed to mirror the price movements of gold or other precious metals.
Trading precious metals summed up
- Gold, silver, platinum and palladium are all precious metals coveted by traders and investors alike
- They have a range of uses, but they’re most commonly found in expensive jewellery
- A number of factors affect the price of precious metals, including supply and demand, economic uncertainty and interest rates
- Many market participants see precious metals as a good investment – particularly gold which is known as a safe haven
- You can take a position on precious metal prices with spread bets and CFDs, or you can invest in the metals directly
1. Best trading platform as awarded at the ADVFN International Financial Awards and Professional Trader Awards 2019. Best trading app as awarded at the ADVFN International Financial Awards 2020.
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This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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1In the case of all DFBs, there is a fixed expiry at some point in the future.
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