Trading Precious Metals and Gold CFDs
There are two main categories of metals, the industrial metals and the precious metals. A key difference between these two categories of metals is that precious metals do not react with oxygen while industrial metals do react with oxygen.
The three major precious metals include gold, silver and platinum. CFD brokers trade these three precious metals and some of them offer also palladium. The main industrial metals include copper, aluminium, zinc and lead. CFD brokers usually offer only copper.
Industrial Metals versus Precious Metals
The price of an industrial metal reflects the overall state of our world’s economy. The stronger the economy is the higher the investment for building new houses and infrastructure. The higher the expenditure for housing and infrastructure the higher gets the demand for industrial metals, so gets the price. But as concerns precious metals this is not always the deal. Precious metals tend to trade within longer cycles that usually last a decade. The precious metals are used mostly as investment assets (35%) and as raw material for jewelry (45%). Normally they should reflect the condition of our world’s economy. But on the contrary the price of precious metals tends to peak during financial and political crisis, wars etc. Gold is seen by investors like a ‘safe heaven’ during economic crisis.
Industrial Metals and Major Exchanges Warehouse Suppliers
Traders of industrial metals may use a simple technique in order to evaluate the real supply and the demand for a particular industrial metal. The two major metal-exchanges (COMEX/CME and LSE) offer information about the warehouse supplies.
Therefore by examining the available stock:
(i) If the stock levels higher then the demand is lower or the production is higher
(ii) If the stock levels lower then the demand is higher or the production is lower
The Importance of Gold
Gold is by far the most important precious metal for both trading and investment purposes. In the globe there are 156 thousand tons of Gold available today while only 2.5 thousand tons are mined yearly. Gold has been the dominant currency for exchanging goods and service since the beginning of civilization.
J.P. Morgan said in 1912: "Gold is money, everything else is credit"
The Main Characteristics of Gold as a Precious Metal
Here are some key characteristics for Gold:
(1) Gold has unique characteristics as a metal
Gold is characterized by two unique features:
(i) Gold durability over time is extraordinary as it doesn't corrode
(ii) Gold may conduct heat and electricity better than copper.
These two characteristics make gold an ideal metal for electronic applications (mobiles, micro-processors, etc.)
(2) Gold as a Hedging Tool against Inflation
Gold acts historically as a hedging instrument against inflation. As the US dollar falls in value due to inflation, gold which is priced in US Dollar gains value respectively. The historic price of gold helps economists to calculate past values in today’s prices.
(3) High Demand for Gold from Jewellery
Jewellery as an industry is the traditional buyer of Gold. The demand from Jewellery accounts 45% of the aggregate demand for gold each year.
(4) Gold is highly used as a Reserve Currency
Every Central Bank in the world uses Gold as a reserve currency. Moreover commercial banks, investment firms and many individual investors include gold assets in their portfolio. The existence of Gold leads to portfolio diversification.
Stock-Indices trend very well without the annoying 'market noise' of other financial instruments. That means you can ride a strong trend using high capital leverage and by placing a narrow stop-loss order. The spreads when trading popular indices are considerably tight.
Trading shares is completely different and you should use very limited capital leverage. Do not trade shares intraday.