GUIDE | TRADING BASICS | BEGINNERS
Precious Metals Trading: A Beginner’s Guide
Trading is risky. Your capital is at risk.
Diversify your portfolio by trading precious metals as CFDs. Go long or short and profit on the price movements. Precious metal trading can be an alternative or a compliment to trading other assets, such as currency pairs (or forex).
FXTM’s precious metals include silver and gold pairs against the USD. Get started today by creating an account and, if you use leverage when trading make sure you understand all the risks involved.
Why Is Gold traded?
Most trading revolves around gold futures. A future is a contract for the physical delivery of commodities at a future date at a price agreed in the present. Commercial gold producers use futures to hedge against price reductions, hence reducing risk. Gold users, such as jewelry companies, may buy gold futures to reduce the risk of price increments.
For investors and traders, gold futures provide portfolio diversification.
Gold futures, options, and bullion also serve as a haven to hedge against financial uncertainty.
Gold also serves as an inflation hedge because its value remains stable. Currencies may drop in value because of certain actions by central and reserve banks. For instance, the printing of more money to offset audacious spending demands by governments.
The value of gold is determined by supply and demand and is not easily manipulated. It’s also shown resilience against political events.
Speculating and spread trading
Some traders choose to speculate on the movements of the gold price on the spot market. They don't need to buy physical assets. With CFDs, traders only need to open accounts with reputed brokers such as FXTM. They can deposit and go long or short on the value of gold against other currencies such as the USD.
Investing in gold often requires buying gold bullion offered as coins, bars, or rounds. They will need to store their assets in bank vaults or safety deposit boxes. Some investors may use their homes as storage options.
For traders who don’t want to hold physical assets, there is the option to invest in ETFs or mining companies’ stocks. Both methods have dividend pay-outs and they can trade their stocks or ETFs on the stock market.
Precious metal IRA provides another means for investing in either gold or silver. However, it's done for retirement purposes and subject to lots of rules.
Why Is Silver traded?
Like gold, silver trading serves different purposes. Traders may buy silver bullion as means of storing their wealth. They may trade silver indirectly by buying silver futures, options, or investing in ETFs mutual funds. Speculating on the spot prices of silver with CFDs is also extremely popular.
So, why invest in silver, and what should you know when trading silver? For a start, it’s the second most traded precious metal after gold.
Traders may pay attention to the gold-silver ratio, which is the value of silver to gold per ounce. You can calculate the ratio by dividing the present spot market price of gold with that of silver.
The ratio acts as a relative indicator for traders. From about 2013, this ratio has been widening. However, the ratio began narrowing in 2020, showing an increase in the price of silver. Unlike gold, silver is mostly used for industrial applications.
Traders should watch for trends that show economic recovery and increased industrial activity. Increased global demand for silver pushes prices higher. CFD traders may also appreciate that price movement for silver is more volatile than gold. While this may mean increased risk, it also creates more profitable opportunities.
What Affects the Price of Precious Metals?
Here are the main factors that have an impact on precious metal pricing:
China has dominated the rare earth markets since the 1990s. The country has reduced its production costs through state-operated mining firms and investments in infrastructure. With China’s cheap rare earth metals, it has flooded the market and subsidized prices driving out many competitors.
In 2018, China produced up to 70% of rare earth materials. About 80% of US imports of precious metals also came from China in the same year.
China’s economy heavily depends on precious metals to power their manufacturing needs. What’s more, the domestic market for gold is robust and booms at certain times of the year, such as The Golden Week.
Population growth affects the metal industry in many ways. More people means increased demand. People move to urban areas and consume more products, including cars requiring precious metals such as silver. They will also buy jewelry resulting in increased demand for gold. Cities will need to be built requiring metals such as steel. Despite population increases, the relative supply of precious metals does not increase. It remains relatively stable.
Banks keep printing currencies, driving inflation higher. Precious metals will, therefore, hold their intrinsic value and usefulness.
Mining companies invest in new innovations to reduce costs – such as human labor – and increase profits. In the coming years, it’s likely even more companies will invest in automated mining equipment. Mining robots can also operate in unsafe conditions and work for 24 hours a day.
Traders should also consider technological advances in the recovery and recycling of precious metals from electronics for long-term trading opportunities.
BRICS is an abbreviation for Brazil, Russia, India, China, and South Africa. As the top emerging economies, they are producers and consumers of precious metals. China, for instance, leads in the production of Gold among BRICS. India has up to 35% of the world’s deposits of beach sand minerals. Analysts consider their mining industry to be running below its capacity.
Traders should closely watch these countries for trading opportunities. They can track the import and export numbers of rare-earth metals, along with monetary policies, interest rates, manufacturing, and GDP figures. BRICS countries have also embarked on ambitious plans to increase their gold reserves.
Choosing a Broker
The first and most crucial step is the selection of a broker for trading precious metals. Here are the features of a trustworthy and reliable intermediary.
The safety of your funds should be a top priority when dealing with any online broker. Make sure that they’re properly regulated and transparent with their performance statistics. Credible brokers keep their customer deposits in segregated accounts and provide negative balance protection.
Wide range of trading instruments
The online broker should offer a wide range of trading instruments and asset classes, including precious metals. It will allow you to diversify your portfolio.
Flexible trading platform
A precious metals broker should offer a robust trading platform. It should allow you to perform automated trading with expert advisors. Most platforms work on mobile devices, so you can trade wherever you are.
Support for technical indicators, charting tools, and other third-party trading aids is crucial. One of the best trading platforms and the de facto industry standard is the MetaTrader Platform. We offer it at FXTM.
With copy trading, beginners may copy the strategies of experienced and proven traders. On a platform that offers copy trading, you'll typically see the top traders or advisors along with their track record. You’ll need to find a trader with a strategy you like and begin copying their trades with your capital automatically.
Education and trading resources
Choose a precious metals broker committed to advancing the knowledge and skills of their customers. FXTM does this by offering educational resources, including tutorials, webinars, and seminars.
The best brokers have in-house analysts. They provide creative insights for their gold and silver traders. It helps them spot profitable trading opportunities.
FREQUENTLY ASKED QUESTIONS
Start trading precious metals’ prices with FXTM today
You can trade precious metals on any account with FXTM, including the Advantage account – where the spread for Gold against the Dollar can be as low as zero!
Start by registering or logging in to MyFXTM, and continue by picking the account you’d like to trade on.
If you face any difficulty, you can contact our friendly Customer Support Team. Start trading precious metals with FXTM today!