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Metals Trading – How and Where to Trade Base and Precious Metals

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The importance of precious metals to the economy and their role in everyday life cannot be overemphasized. As a versatile product, Metal always enjoys high demandThis makes it a preferred asset for both traders and investors.but did you know that Metals could be a benchmark for economic healthOr is it that there are metals so important that their absence could hinder the development of several industries at the same time?

This guide Everything you need to know about trading metals. It depends on where and how you buy and sell products, What determines the price of precious metals And what it teaches us about the economy.

there is Two types of metals: ferrous and non-ferrous. The group of non-ferrous metals is divided into two categories: base metals and precious metals.

Base metals are industrial products used primarily for manufacturing, construction, and assembly applications. It tends to oxidize, tarnish and even corrode over time when exposed to air and moisture.A few Common base metals include copper, iron, aluminum, nickel, lead and zinc, more. These metals are abundant in nature. It is rarely used in jewelry and is not a good way to store value.

As the category name suggests, precious metal It is the more expensive and rare cousin of base metals.they A luxury item used for jewellery, fine tableware, ornaments, or simply to store value. It will not corrode, oxidize or tarnish, so it will remain in perfect condition for centuries. Precious metals are Also less than It makes them more valuable.most popular Precious metals include gold, silver and platinum. However, there are others such as: Palladium, rhodium, ruthenium, iridium, osmium.

Note that some precious metals are also used in industrial applications.

To summarize the difference between base metals and precious metals, Base metals are the backbone of the economy. This is because while precious metals are more highly valued and serve primarily as wealth stores, they are of great importance to the industry..

iron metal, on the other hand, A metal containing iron. Among them cast iron, wrought iron, alloy steel, carbon steel, to name a few. These metals are close to the base metal group in terms of their uses and industrial value. They are fundamental to many industries and are used for their tensile strength and durability. It also has magnetic properties.

there are many how to trade metalsinclude Futures contracts, ETFs or CFDsThere are also indirect ways to access these markets. own shares in the mining companies that produce those metals Also Over-the-counter products such as mutual funds Based on specific metals. but, The most direct way is to use the futures market.

Above shanghai gold exchange, with an average daily trading volume of over 6 million ounces of gold and 140 million ounces of silver. 22 million ounces of gold, 350 million ounces of silver and 1.25 million ounces of platinum and palladium are traded daily in futures contracts on the Chicago Board of Trade (CME).

At CME, you can trade futures and options contracts on the most popular precious, base and ferrous metals, including:

  • gold, silver, platinum, palladium
  • copper, aluminum, zinc, lead
  • iron scrap

many The exchange offers full, mini, and micro futures contracts To open the metals market to small traders and investors with limited capital. It also supports leveraged trading.

If you want to trade more exotic base metals, you can choose the London Metal Exchange (LME), the largest exchange for base metals options and futures contracts.

Be aware, however, that base metals are often heavily traded by large brokerage firms, institutional trading houses, or industrial giants. means As such, it may not be the best place for retail investors and novice traders as they may fall victim to price fluctuations caused by large market movements. may also prove to be a comfortable choice.

Precious metals: investing in gold and silver

Precious metals are a popular tool for portfolio hedging and diversification as they tend to perform well in turbulent market conditions.It is also highly resilient and durable, which means that its value may remain the same or even increase over time.

Precious metals offer the greatest number of trading and investment options. Apart from ETFs, futures and options contracts, stocks, and some OTC products, Investors can also purchase gold and silver in physical form. This includes purchasing coins, jewelry, accessories, bullion, bars, collectibles, and other items made of gold, silver, platinum, palladium, etc. However, such investments come with shipping, storage, insurance, and other costs.

It is estimated that, on average, over 19 million ounces of gold and over 170 million ounces of silver are london market.

Like any other commodity or financial instrument, Base and precious metal prices are determined by their supply and demand.

It is well known that due to the high supply of base metals, their prices are usually much lower than those of the rarer precious metals. However, to be able to predict supply and demand dynamics, and therefore price movements, it is important to dig deeper and explore what and who can influence them.

Factors Affecting Metal Prices

Various economic and financial factors determine the price of precious metals. The more you pay attention, the more accurate your price analysis will be. The most common factors that affect metal prices are:

As mining technology improves, it will be possible to extract certain metals more quickly and in larger quantities. This will bigger supplytherefore cause short-term or medium-term price declines.

Meanwhile, strikes by miners in major metal-producing countries could slow exports and lead to global supply shortages. As a result, the price of certain metals is higher.

For example, the global lockdown after the COVID-19 pandemic has destabilized global supply chains and caused the price of lithium, a key component in electric vehicle batteries, to skyrocket. Disturbed exports from Australia and Latin America, the largest lithium producers, have thrown the EV industry into turmoil and led to a major market reversal. The same is now happening to platinum and palladium prices due to restrictions on Russia, the world’s leading palladium miner and the world’s second largest platinum producer.

economic uncertainty

recession reduce industrial production, Leads to lower demand for base metalsPrices may drop as a result.

At the same time, many investors consider gold and precious metals as safe haven assets. When the economy becomes unstable, the demand for store of value always increases.that’s why Gold prices typically trend higher when the market is down.

geopolitical conflict

Similar to economic uncertainty, Geopolitical stress could also lead to higher metal pricesWhen it comes to precious metals, the reason is also the idea of ​​having a haven for your wealth. there is.

USD strength

As with most products, Metal is also denominated in dollarsThis makes them dependent on the price dynamics of the US currency. The usual, As the US dollar depreciates, the price of gold rises. and vice versa.

There is also the purely psychological idea that the price of gold is sensitive to the overall perceived value of fiat and paper currencies.

Financial policy

there is a theory that Monetary policies such as quantitative easing and interest rate dynamics affect precious metal prices.

Interest rate reasons are relevant for bond investors. If changes in interest rates hit yields, they may see precious metals as a viable alternative.

But the stronger link between interest rate changes and metals prices is the impact on the US dollar. Precious metal prices may fall if the dollar rises following interest rate announcements.

When it comes to quantitative easing, here’s why. Money printing policies can depreciate the currency and increase inflation. When Precious metals perform well during periods of high inflation.

Who Trades Metals?

It is also imperative to be familiar with the details of the market and the parties involved in the trading/investment process for each metal. Specifically, it determines supply and demand, and thus affects prices.

For example, silver is a precious metal with a wide range of industrial and commercial uses. The combination of these factors makes metals of interest to a variety of stakeholders, including:

  • mining company
  • Metallurgy and refining business
  • Electronics, automotive and energy companies
  • jewelry industry
  • Institutional investors (banks, hedge funds, mutual funds, etc.)
  • prop trading company
  • retailers and investors

This is just a fraction of the market participants interested in silver. The case is very similar to other precious metals. For base metals, the industrial sector stakeholder group is broader, with less participation by smaller investors and traders.

These parties can use silver for a variety of purposes, from pure speculation, hedging, or portfolio diversification to price protection or manufacturing uses. The purpose and manner in which they conduct their trading/investing activity determines the supply and demand for a particular commodity.

many Market experts see base metal prices as an excellent benchmark for the state of the global economyTheir prices tend to rise when the economy is doing well and fall during recessions, so they are closely related to the overall economic health outlook.

Here are some interesting facts. Economists call copper: “Doctor Copper” I’m joking that I’m a metal with a PhD. in economics. The basis for such jokes is In many cases, turning points in the global economy can be predicted just by looking at the price of copperCopper is highly reflective of the economy. They are used in many industries, from heavy industrial machinery to advanced electronics. as a result, That demand may indicate an expansion or contraction in economic output.

However, the direction of metal prices alone is not always an accurate representation of the state of the global economy. again, Consider the rate of price decline or rise. Small changes are natural and can be the result of specific industry or country-specific events. However, if the decline or rise is substantial, the signal of economic contraction/growth is much stronger.

Frequently Asked Questions

Which is the most precious metal?

Two characteristics that define the most precious metals are their rarity and price. The rarest metal is osmium. In nature, there is only about 1 gram per 200 tons of earth’s crust. Rhodium is the most expensive, reaching $29,800 per ounce in March 2021, the highest price ever.

What is the best way to invest in precious metals?

The easiest way to invest in precious metals is through futures contracts. They give you direct exposure to the merchandise. If you want to invest in industries rather than commodities, ETFs and stocks of mining companies are viable alternatives. You can also purchase precious metals in physical form.

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