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Metal trading is the buying and selling of metals in various forms, usually on the basis of technical or fundamental analysis. Metals are commodities that can be further classified as precious or base metals. Notable precious metals include gold, silver, platinum and palladium, while base metals contain lead, copper, aluminium and zinc.
Precious metals are unique due to their longevity, as they do not tarnish over time. Therefore, these metals serve well as jewellery and stores of value. On the other hand, base metals degrade over time and are primarily used for manufacturing purposes.
Precious metals also possess industrial functions due to their malleability and ability to conduct electricity which elevates their value. The scarcity of precious metals is a reason behind their high prices. Base metals, nevertheless, are more abundant, which can correlate to lower prices.
However, investors should consider both sets of metals in times of economic growth as demand tends to increase.
Markets for metal trading varies and ultimately depends on the investor’s objective. This can be as simple as direct physical investment and storage, usually precious metals in bullion (pure form) due to its ability to maintain value over time. The futures and options market—derivatives—are additional avenues for metal trading, boasting high liquidity with a determined price for a later date. Large amounts of metal’s contracts are bought and sold daily on these markets for industrial and speculative purposes.
ETFs (exchange-traded funds) are also a convenient and liquid form of investment for purchasing and selling based on the price movement of metals. They are investment funds which track the price of a specific metal (or basket of metals) and trade on the stock market. Finally, CFDs (contracts for difference) are agreements with brokers that pay the difference between the opening and closing prices of a position. These contracts allow investors to speculate on short-term price movements of individual metals (long-term investment is also permitted).
Purchasing stock in companies responsible for mining, refining and distributing certain metals is also a form of metal investment. A future demand rise for a specific metal may lead to the growth of well-established companies involved in the commodity’s supply chain.
Gold is the most prominent precious metal. Demand has steadily increased over time due to the emotional, cultural and financial value it offers. Gold has been a symbol of wealth since its discovery and is deeply intertwined with modern culture. In the financial markets, it also considered a safe-haven asset, one that tends to maintain its value in times of market volatility or turmoil. Central banks worldwide also hold large quantities of gold to protect their financial systems from currency collapse, as gold remains valuable.
Beyond being a symbol of wealth and a financial investment, gold has varied industrial uses. It is present in home electronics and the dental industry. The diverse nature of gold and lack of fresh supply, therefore, means demand remains high even amid sometimes highly volatile price fluctuations.
For base metals, steel and iron ore demand is growing. The worldwide push for development has countries spending more than ever on infrastructure. A growing economy has a considerable demand for these metals as they are used widely in construction, providing infrastructure and transportation machinery. Renewable energy trends have seen a growth in demand for metals such as lithium and cobalt, as they are utilised to manufacture electric vehicle batteries. The acceleration for development of cleaner technologies will cause demand for these metals to grow. Various metals will be prominent elements of the transition towards cleaner energy.
Certain metals are prevalent in renewable industries, meaning future demand may increase. Since the Paris agreement, an international treaty against climate change signed by 196 countries, considerable worldwide investment into renewable energy has caused demand growth for specific metals. Silver, for example, is used to produce solar cells. With worldwide growth of investment into the solar industry, a growing demand for silver is likely to follow. Another example is the automobile industry requiring palladium to make catalytic converters (devices used to lower emissions). Demand currently outpaces supply as this metal is notoriously complicated to mine, confined to Russia and South Africa. Palladium prices are incredibly high as of writing, outpricing gold.
Base metals such as aluminium and copper are vital for a renewable future. Aluminium is one of the most durable and versatile metals. These qualities mean that this metal has extremely varied industrial uses, from aerospace and other motor vehicles to beverage cans and kitchen utensils. A carbon-friendly future contains a high amount of aluminium use as it is fully recyclable. Certain predictions for the next 30 years see demand for this metal rise significantly compared to other base metals. While the debate rages on how to produce aluminium more efficiently, demand looks set to continue to grow. Copper is also a critical metal in reducing carbon emissions. Most renewable energy sources utilise copper due to its electric conductive capacity. These include solar, hydro, thermal and wind energy while being key to electric vehicles and charging stations. Demand for copper has also been predicted to rise alongside aluminium.
CFDs represent one of the most straightforward ways to begin investing in the metals market. They provide investors with the opportunity to speculate on metal price changes without physically owning the commodity. Through FP Markets, leading global metal CFDs are available with up to 500:1 leverage against the US dollar. High leverage allows investors to take on larger positions than initially invested (account equity); while this creates more significant trading opportunities, it also increases risk. Risk management is essential for a successful trading career.
ETFs are another popular and effective way for beginners to invest in metals. Similar to CFDs, they allow investment without complications of physical delivery. These funds track the prices of specific metals; those backed by physical assets are considered safer investments. The initial investment is also low and the ETFs can be held for an indefinite amount of time.
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