Trading and Investor Services:
Precious Metals Trading or Investing Services
What are the different types of metals?
There are several kinds of metals that investors can take a position on. These are usually categorized as ‘precious’ or ‘base’. The most well-known precious metals are gold, silver, platinum and palladium, and the most well-known base metals are copper, lead, nickel and zinc.
What are precious metals?
Precious metals are rare, organically occurring, metallic elementals that have an inherent value. They don’t usually oxidize or corrode, and they don’t naturally tarnish. The main precious metals are considered to be gold, silver, palladium and platinum – which are all used in jewellery, but which also have a range of different applications.
Precious metals have been used for currency and jewellery throughout human history, and more recently, metals like gold are used in devices including iPhones and computer software. Some precious metals are seen as concrete stores of wealth during times of market uncertainty – known as safe havens.
What are base metals?
Base metals are common metals that will naturally oxidize, corrode or tarnish. Examples include copper, lead, nickel and zinc. These metals are used to make products such as copper pipes, or to make alloys such as nichrome – which is an alloy of nickel and chromium.
Copper is also a popular sculpture material, with icons including the Statue of Liberty getting its green hue from oxidized copper.
What are the different precious metals to trade?
There are generally taken to be four main precious metals to trade: gold, silver, platinum and palladium. These all have a range of applications, not just as a historical store of money or for their use in jewellery, but also in industry, electronics, medicines and as alloys.
Gold
Gold has been used in the production of expensive goods for millennia. Today gold is used in jewellery, decoration and – thanks to its conductivity – the smartphones and computers that we all use daily. It’s also the safe-haven asset of choice for many investors during times of market uncertainty.
Silver
Silver is a popular metal in industry, where it’s used for its conductive, anti-bacterial and malleable properties. These give silver a range of applications, including in batteries, dentistry and water purification.
Platinum
Platinum in its pure form is used in jewellery and dental work. But, it’s also popular as an alloy – for example, the alloy of platinum and cobalt is used to make magnets. It’s also used in some chemotherapy drugs, particularly those that treat testicular and ovarian carcinoma, lung cancer and lymphomas.
Palladium
Palladium is a congener with platinum – meaning the two metals share a common structure, origin or function. More than half of palladium’s supply is used in catalytic converters for cars, which are essential tools that convert harmful gases like carbon monoxide into nitrogen, carbon dioxide or water vapour.
How to trade or invest in precious metals
Trading precious metals
Trading precious metals means that you’ll be speculating on prices rising or falling with financial derivates. When you trade with us, you can choose whether you want to trade precious metal futures, spot prices and options.
You’ll be trading on these prices, you won’t ever need to take physical delivery of the underlying assets – such as gold or silver.
Investing in precious metals
If speculating isn’t for you, then you can always invest in commodity stocks and exchange-traded funds (ETFs).
Stocks let you gain indirect exposure to precious metals by buying shares in the companies involved in their production and use. ETFs let you speculate on a diverse collection of assets in a single investment, and commodity ETFs – such as a gold ETF – will be set up to closely follow the price of that metal in the underlying market.
What affects the price of precious metals?
Supply and demand
As with any product or service, a shortage of precious metals – or an increased need for them – makes them more valuable. For example, if a strike at a major silver mine interrupts production, silver prices could increase over the short term.
An improvement in mining equipment could have the opposite effect, speeding up production and saturating the market – which would drive prices down, assuming demand remains constant.
Economic uncertainty
In times of economic and political instability, precious metals are traditionally viewed as safe havens due to their lasting value. We saw this theory in action in 2016, when Donald Trump’s election to the US presidency caused gold to rally as nervous investors flocked towards its haven status.
Industrial output
Precious metals have a huge range of industrial uses, including in the manufacture of automotive parts, medical devices, electronics and jewellery. What’s more, new applications are continuously being developed. As demand for these goods grows, so does the demand for precious metals.
Strength of the dollar
Given that precious metals are dollar-denominated, they are particularly susceptible to fluctuations in the value of the greenback. When the dollar falls, precious metals are a good place to store USD – meaning it is likely to push the price of precious metals higher.
Interest rates
Precious metals offer a desirable alternative for fixed-income investors, whose investments offer a lower yield when rates are slashed. As such, Fed decision-making may guide investors towards these safe-haven opportunities, but the Fed’s impact on precious metals shouldn’t be overstated. Of more importance is how rate announcements affect the dollar.
Quantitative easing
Precious metals generally perform better in a rising-inflation environment. This is because quantitative easing – or money-printing – dilutes the value of the currency in circulation, and makes it more expensive to buy assets which are viewed as a reliable store of value.
Are precious metals a good investment?
Precious metals are regarded by many investors as a good investment – particularly gold, which is known for its safe-haven status. Investors will often move their money into gold during times of market uncertainty and because of their applications in jewellery, electrical components, car parts and industry, precious metals are usually in high demand.
You can invest directly in the shares of companies that produce precious metals with a share dealing account. This will give you exposure to the supply of precious metals, as well as to the ways in which they are used. Plus, with a share dealing account, you’ll be able to invest in ETFs which are designed to mirror the price movements of gold or other precious metals.
