Because of how well-liked it is in trading, one market that even inexperienced investors practice is the metals market. Metals are quite popular wherever you are around the world! And are also an asset that’s pretty essential, useful and even one to enjoy for personal use!
This is why the metals market is such a great trade to get into since it’s always in demand. As mentioned above it holds tons of purpose making it a valuable commodity. This trade is great for all kinds of traders whether you’re a novice, an experienced trader or a small or prominent investor.
But to know about trading metals you first need to get your questions about the market answered! And a great way to do that is by checking out its FAQs down below!
What are the kinds of precious metals in trade?
When you hear metals trading it usually means the 3 main types of precious metals such as the popular gold, silver and also platinum. The big 3 are the most traded metals, but there are also more kinds of metals in trade you should know about like palladium, iridium, ruthenium, rhodium and osmium.
How do I trade precious metals?
There are a few common ways to trade metals. All of the ways hold their processes so depending on what you prefer, go for what you feel more comfortable and familiar with. One of the most common ways has got to be physical trade, this is when you can buy the actual metal.
You can usually buy the metal from dealers, gold vendors and even through exchange-traded funds or in shorter terms (ETFs). In addition, you may buy metal contracts for difference (CFDs), which monitor the asset’s fundamental price, or trade gold through ETFs that follow the commodity’s price changes.
What are the factors that affect the price of gold?
6 common factors affect the price of gold. These factors are crucial to know about since they can greatly affect the price of gold which can either be good news or bad news to you.
By knowing these 6 factors, you’ll be able to make more accurate and strategized decisions when trading that can increase your odds of profiting. So without further ado, here’s a 6 to keep a look out for:
Supply and demand
In any trade you get into, this is a common factor to consider. The price of gold is significantly influenced by the law of supply and demand. In the market prices often decrease when there is a big supply and demand is small. And prices often rise when supply is limited and demand is high.
But the thing about gold, the high price of gold has remained relatively stable over time since there is typically more demand than supply. This distinguishes gold from various other commodities where supply and demand significantly influence pricing.
Market sentiment refers to the consensus of a market as a whole. In a nutshell, it’s the reputation of gold amongst investors. This is also called crowd psychology where the thoughts of a crowd towards a market can greatly affect it despite demand and supply. So the image or “market sentiment” is an important factor to consider and to always check on before buying or selling.
Economic conditions are greatly tied together with market sentiment which can greatly impact the price of gold. But because investors believe that gold is a “safe bet” in trade, its prices often perform well during political and economic upheaval across the world.
The state of the economy also has an impact on gold prices. When there is an economic downturn, numerous investors switch from comparatively riskier investments. Like shares to safer assets like gold, which increases the price of the metal.
Inflation & deflation
Another thing that can affect the price of gold or any kind of commodity is inflation and deflation. The delicate balance among these two opposing economic circumstances makes it possible for an economy to swiftly go from one to the other.
And something you need to know about gold and this factor is, when inflation goes down or is gone, the price of gold will surely decrease as well.
Since gold is strongly tied to currency, a currency’s value also greatly affects the price of gold. So for instance, if the US dollar fluctuates and goes down, the price of other commodities as well as gold, gets affected too.
Gold prices can occasionally be impacted by interest rates. Which gives a clear indicator of how serious central banks believe inflation to be. Higher interest rates often cause gold prices to decline, even though there is no direct relationship between the two. And it is usual for the two to shift in the same direction.
This is because rising interest rates provide investors with a greater return on their investment. Thus making gold less alluring to investors and driving cash out of the market for gold.
Why are gold CFDs a good investment in trading?
There are various reasons why gold is a great investment to consider. Reasons why tons of investors have gold in their roster along with other investments. But of course for you to understand why gold is so desirable to many, below is a list of reasons why it’s a good commodity to invest on:
- Accessibility – Unlike other commodities in the market, gold is by far one of the most associable may it be through physical purchasing or CFDs. But for a more fruitful investment, we suggest you go for the CFD trading option since it’s more convenient and cost-efficient.
- Does well on bull and bear markets – When trading with metals through CFDs, you can bet your investment to withstand bull and bear markets! So whether you want to go long or short, you can since this allows you to capitalise on both rising and falling markets.
- Liquidity – Due to the high trading volume of precious metals, especially gold, this makes it pretty liquid. Liquidity is a great bonus in any market since it makes a commodity/asset easier and cheaper to trade.
- Leverage – This allows you to start with a small capital to open a position. So this is ideal for beginners, small investors or simply stingy traders. A great deal of leverage is typical with gold CFDs, which translates into minimal margin needs.
- No expiration date – CFDs on gold have no set expiration date, and traders decide when to end positions. This is handy as it allows you to maintain an open position until you achieve the appropriate profit margins.