TRADING IN CFDS ON COMMODITIES — Precious Metals

The Precious Metals Market

Gold and other precious metals are hard commodities that play a major role in the commodities market and are contract-based tradable goods. The contracts based on precious metals can include futures, spot prices, forwards, and options.

Trading in Gold and Precious Metals

The most frequently traded precious metals are gold, platinum, palladium, and silver, and the high trading volume on these commodities is attributed to their retained intrinsic value, regardless of economic conditions. The preference for the online purchase, and even physical ownership, of precious metals as a long-term investment has tremendously increased in recent decades. Trading in precious metals also presents opportunities for those interested in short-term investment since derivatives and exchange-traded contracts are a less capital-intensive and simpler way to take a position on their price movements.

Unlike most commodities that are mainly dependent on production and consumption levels, gold trading prices, for instance, are not: they follow the pulse of political changes and make it possible for gold to function as a hedge against other markets in times of uncertainty. Along with gold, platinum, palladium, and silver are also valuable assets traded by investors who regard them as stores of value in times of monetary uncertainty.

Several factors affect price fluctuation and can cause volatility in the precious metals market. One of the essential factors is global financial institutions, whose investments are speculative in nature and can cause upward or downward price movements. Another factor that influences the market is the end-user trends, mainly triggered by jewelry buyers: the demand in jewelry makes the precious metal market prices to rise.

The economy also has an impact on market prices. In a globally well-performing economy, the level of wealth is directly correlated to the demand for gold and other precious metal jewelry: when investors search for investment options that present a higher risk, the prices of certain precious metals is lowered while the price of others rises. Last but not least, the changes in demand for some other financial assets apart from precious metals also contribute to price fluctuations.

 

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