Precious metals have been used as an investment option as well as a method to store wealth, with gold being the most commonly used. Today there are many ways to trade and invest in precious metals. Precious metals are rare metals that are characterised by having high economic value, such as gold, silver, and platinum. They can be used for a wide range of purposes such as the production of jewellery. As securities, precious metals can be considered safe-haven assets, especially in times of economic uncertainty.
When thinking of precious metals as an investment, there is a wide range of instruments available, such as CFDs. This option may be the most suitable for traders and investors who do not wish to physically own precious metals. CFDs are leveraged products that allow making a profit in both directions, meaning you can achieve returns whether the price goes north or south.
Gold & Silver
Gold has maintained the leading position in the commodities market, as it is used in the production of jewellery and has several industrial purposes such as electronics, computing, aerospace, and manufacturing. The best way to trade or invest in gold will depend on your level of risk and strategy. Gold is the ultimate asset for wealth preservation because it can protect against inflation, and it is considered an excellent asset to diversify a trading portfolio.
Silver is another popular choice of investment and store of value. Its properties make it distinctively positioned in the industry, as it is also involved in the production of electronics, energy, and jewellery. Silver has a strong positive correlation with gold, as it tends to follow the same direction. However, the supply of this metal is lower compared to others.
What Affects Their Price?
- Supply and demand. As with any financial product, the shortage or the increased need for precious metals makes them more valuable.
- Strength of the US dollar. Given that precious metals are dominated by the dollar, their price can be affected when the dollar price fluctuates. For instance, when the USD tends to fall, precious metals prices tend to rise, meaning they can be a good option to hedge against dollar depreciation.
- Exchange rates. Exchange rates can cause a price fluctuation in precious metals as traders and investors react.
- Interest rates. When interest rates increase, metal prices tend to fall because traders and investors usually turn to other assets classes that can generate more returns. On the contrary, when interest rates fall, metal prices rise as traders and investors turn to them as safe-haven assets to protect their wealth.
Are Precious Metals a Good Investment Option?
Precious metals have been considered a good investment option for their safe-haven status, especially in the case of gold. In times of economic uncertainty, they are often hedged against inflation or currency devaluation, as well as a way to diversify one’s portfolio. Precious metals provide a negative correlation to other asset classes such as stocks, which means even a small percentage of precious metals in a portfolio can help to reduce risk.
Trading metals is similar to Forex trading, where traders and investors take long or short positions on the asset prices. However, precious metals can be particularly volatile, so it is essential to have clear financial objectives and risk profile before trading or investing in them.
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