Precious metals such as gold and silver have been recognised as valuable metals for a long time, but gold and silver are not the only ones out there for investors. Gold trading offers lots of opportunities for investors, but there are also other metals that you can add to your portfolio such as platinum and palladium.
There are many good reasons why you should invest in precious metals and also many ways to invest. Learn more about the different types of precious metals, what affects their value and whether they are a good investment.
Gold is seen as a safe-haven asset during times of market uncertainty
Gold is unique for its durability and ability to conduct both heat and electricity. It has some industrial applications in dentistry and electronics, but it is mainly used for jewellery and as a form of currency. The value of gold is determined by the market 24 hours a day, seven days a week. When banks and money are considered as unstable, gold is considered by investors to be a safe-haven asset during times of market uncertainty.
The price of fluctuations of silver are more volatile than gold
Due to its conductive, anti-bacterial and malleable properties, silver is used in jewellery and in industry. In contrast to gold, the price of silver moves between its perceived role as a store of value and its role as an industrial metal. Due to this, price fluctuations in the silver market are more volatile than gold.
- Platinum is the most volatile of the precious metals. Platinum is considered an industrial metal. The greatest demand is from automotive catalysts. After this, jewellery accounts for the majority of demand. Platinum is also traded around the clock on global commodities markets. It often tends to reach a higher price (per troy ounce) than gold during routine periods of market and political stability because it is much rarer.
- Palladium is not as popular as other precious metals. Palladium is not as popular as gold, silver and platinum. It is a shiny, silver metal used in different types of manufacturing processes, particularly for electronics and industrial products.
How to trade or invest in precious metals
You can trade precious metals by speculating on falling or rising prices with financial derivatives like CFDs. For instance, you can trade CFDs on gold and silver in any direction you think the markets will go, short or long. You will be trading on these price movements, so you will not actually own the underlying assets.
Another way to invest is in commodity stocks and exchange-traded funds (ETFs). ETFs provide a convenient and liquid means of buying gold, silver or platinum, but you do not have access to the physical commodity.
Stocks enable you to gain indirect exposure to precious metals by buying shares in the companies involved in their production and use. ETFs allow you to speculate on a diverse collection of assets in a single investment, and commodity ETFs will be set up to closely follow the price of that metal in the underlying market.
What affects the price of precious metals?
Different factors have an effect on the price of precious metals. Let’s consider these factors below:
- Supply and demand. As with any product or service, a shortage of precious metals or an increased need for them, makes them more valuable.
- Economic uncertainty. During times of economic and political instability, precious metals are traditionally viewed as safe haven assets due to their lasting value.
- Industrial output. Precious metals have a wide range of industrial uses which include the manufacture of automotive parts, medical devices, electronics and jewellery. In addition, new applications are being developed continuously. As demand increases, the demand for precious metals also grows.
- Strength of the dollar. As precious metals are dollar-denominated, they are particularly influenced by fluctuations in the value of the US dollar. When the value of the dollar decreases, precious metals are a good place to store USD, meaning it is likely to push the price of precious metals higher.
- Interest rates. Precious metals offer a positive alternative for fixed-income investors, who get a lower return on their investments when interest rates are cut. Therefore, Fed decision-making may push investors towards these safe-haven opportunities.
The advantages of investing in precious metals
- Protection against inflation. When inflation affects your other financial assets, you can trade precious metals to mitigate exposure from uncertain economic changes.
- Diversification. Metals trading is an important way of diversifying your portfolio, and gold is especially popular because of its status as a reliable metal to hedge against currency devaluation or high inflation.
- High liquidity. The market for precious metals is appealing because of the liquidity of precious metals.
- Low transaction costs. The low transaction costs connected to online metal trading makes it even more beneficial to traders.
Are precious metals a good investment?
Precious metals, are regarded by many investors as a good investment, especially gold which is known as a safe-haven asset. Investors will often invest their money in gold during times of market uncertainty. Also, because of their applications in jewellery, electrical components, car parts and industry, the demand for precious metals is usually high. The rule to being successful with precious metals is knowing your goals and risk before investing.
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