The Ultimate Guide to Precious Metals Trading for Investors

Trading of precious metals is a good option for investors that want to diversify their portfolio and hedge against any economic uncertainty. Gold and silver are just two examples of precious metals often thought of as a safe haven, during periods of market volatility. If you are an experienced investor, or just a beginner, knowing the basics of precious metals trading is necessary if you want to be sure that your investment decisions are sound and will lead to money returns.

Commodities usually considered to be a store of value, such as gold and silver, are bought and sold in precious metals trading. These metals have intrinsic value that make sense during inflation or economic crisis times. Precious metals don’t have anything to do with the performance of companies or governments like stocks or bonds do. Supply and demand factors and global economic conditions, plus the sentiment of the investor, will broadly determine their value.

A great advantage of precious metals trading is that they can be used as an inflation hedge. Precious metals generally hold or even appreciate in value when traditional currencies lose value. This means that they are perfect for those investing with the goal of protecting their wealth over the long haul.

Gold, a precious metal is the most well known and for good reason, it has often been the go to option for investors. A store of value, it has a long history of use in jewelry, electronics and other areas. Although it’s cheaper than gold, silver is also highly valued and often imitates gold prices. The metals are rarer and cost more – platinum and palladium have industrial uses in the automotive manufacturing and electronics industries.

Every metal has their own characteristics and this should be known by one before venturing in trading metals. Silver is usually more volatile and that can see more price swing than gold is. Platinum and palladium are more closely tied to industrial demand, making their price movements more uncertain.

Investors beginning precious metal trading generally have two options; to trade in physical metals or financial instruments such as futures contracts, ETFs or mining stocks. You can buy physical metals through coins or bars, and keep them in a secure location, but it will incur additional costs, such as storage and insurance. On the other hand, financial instruments offer not only superior liquidity and flexibility (you can buy and sell without having to handle the physical asset), but also greater diversification, because they do not always track the physical price of an underlying asset.

It is important to trade precious metals through a reliable broker or trading platform. Precious metals markets are available via many brokers, and some of the brokers focus on these assets only. Knowing the fees, commissions and spreads that apply to using trading platforms is significant, as these all have a tendency to nibble away at any profits over time.

Precious metals trading, like any other form of trading, has its own set of risks. Metals can be volatile and market shifts can mean large losses. While not a guarantee, investors should also consider setting stop loss orders to hold risk as low as possible, and use good position sizing so no single trade will wipe out a large bit of their capital.

Diversification is another important strategy with precious metals trading. Spreading the investments over different metals and other asset classes decreases the impact of market movements in an unattractive way. Stay as informed as possible about global economic conditions as these will have a big impact on the price of precious metals as well.

Trading precious metals can provide safety to an investor’s portfolio, by simply protecting it from market dips and risk of inflation. Since these assets are usually considered a safe haven during uncertain economies, they can be added to your investment strategy. With knowledge of what pushes the price of precious metals, and executing prudent risk management tactics, investors can operate within the inner workings of precious metals trading and perhaps realize long term success.