How does one trade metals?
Many professional investors hold metals for a balanced portfolio, because these instruments are generally considered hedges against inflation
Many professional investors hold metals for a balanced portfolio, because these instruments are generally considered hedges against inflation; metals such as gold & silver may also be treated as safe-haven assets, since their scarcity or limited supply provides underlying support to their value.
Among the metals, gold is the most actively traded instrument, because of the core properties such as durability, malleability and conductivity, but mostly for its wide usage in jewelry. As is with most commodities, the price of gold is determined by the market forces of supply and demand; these, in turn, are influenced by risk sentiment, market uncertainty and inflation trends.
It is a common occurrence that investors and traders rush to the safe-havens such as the abovementioned, when the economy seems to be falling apart, globally. Compromising situations such as: war, political/non-political crises, recessions and government debt issues; in such scenarios, stocks and currencies are vulnerable, whereas gold still stands chances at value retention, due to the scarcity of it.
Due to this, gold is often traded by long term investors, rather than short, which are searching for signs of a bull, or bear market; trends or reversals can be determined in tandem with equity indices, as a strengthening stock market is typically indicative of strong economic performance, hereby creating weaker demand for gold. On the other hand, a bear market reflects weaker fundamentals and lead traders to seek the safe-haven of gold holding in their portfolios.
Silver, on the other hand, is seen as a second-stringer to gold, but it does have its own benefits; specifically, silver is usually used as an industrial metal, rendering it more sensitive to trading activity, as well as business conditions among companies; due to this, price fluctuations in the silver market tend to be more volatile than that of the gold market, making it a prime candidate for short-term traders.
Platinum is also one of the metals that tend to gain value during times of economic, financial or political crisis. Due to its rarity compared to gold, however, it does demand a significantly higher price, and therefore is less frequently traded; yet, it could serve as a strong safe-haven alternatively to gold, especially when gold is over-bought; platinum shares some characteristics with silver when it comes to the uses of it in specific industries, making its’ pricing sensitive to business conditions, as well.
It’s important to note that buying and selling these precious metals doesn’t require the actual delivery of goods, so there is no need to worry about the storage of such metals. This is what is termed as over the counter trading (OTC), and there are high levels of risk involved with such activity. With-out solid risk management plans in place, all money which was deposited, may be lost. This is why it is necessary to fully understand risk-management and to use the tools like stop-loss and take-profit; these will not prevent what you allow yourself to lose, but rather prevent complete loss.
Another feature of metals’ trading is that they offer inflation protection, which is not offered by other financial assets, although their prices are still sensitive to currency fluctuations; to take these into consideration, Forex Tigon LTD offers precious metals trading against a variety of other currencies, including without limitation to: