The value of precious metals like Gold and Silver is rooted in the fact that supply is limited and demand is ongoing. Low levels of production by the mining industry have kept the price of precious metals elevated and ensured that they have always commanded much higher prices than common industrial metals. Precious Metals are one of the few investments that continue to survive and thrive in times of economic uncertainty. Historically, as well as presently, they have been a reliable store of wealth for individuals and governments alike. The most commonly traded precious metals are Gold & Silver, their demand is not only driven by their practical use but also by their role as investments.
How do you trade Precious Metals?
Precious metals are traded in Lots where the minimum price fluctuation is measured in Pips/Ticks depending on the designated trading method. An investor may choose to trade precious metals in the Spot market or the Futures market or both. The contract size for 1 standard Lot of Gold is 100oz and similarly for Silver the contract size is 5000oz per Lot.
Each precious metal trading method has its own set of terms, conditions and designed purpose.
Trading Precious Metals in the Spot market
The spot market is a network of the largest financial institutions in the world such as central banks, commercial banks and other financial institutions, corporations and private investors, where precious metals as well as foreign currency is bought and sold instantly. It is the single largest market and estimated at US$ 3 trillion per day.
Trading precious metals in the spot market is possible 24 hour a day as the market works continuously all week, except Saturdays and Sundays.
In the spot market precious metals are usually bought or sold based on a value date of 48 hours which can be rolled over on a daily basis thereafter. The transaction size is measured in Lots whereas the contract size varies depending on the instrument in question.
Trading Precious Metals in the Futures market
The Futures market is a worldwide market for all types of commodities including manufactured goods, agricultural products and financial instruments. The primary function of the futures markets is to provide a liquid centralized market to set prices. A futures contract is a contract to buy or sell specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future.