Precious metal trading is a popular option for those seeking investment opportunities outside of the stock markets. With commodities such as gold, silver and platinum evolving rapidly, online precious metals trading is now supported by many brokers and trading platforms via various instruments.
This guide covers the basics of precious metals trading. We also list the best precious metals brokers.
There are four main precious metals that are traded today: gold, silver, palladium and platinum. However, other metals such as iridium, rhodium and ruthenium are also considered precious metals and may be available for trading, depending on your broker.
As their categorisation suggests, precious metals are rare, which contributes greatly to their value. In addition to being trading and investment assets, metals are also often used to create jewelry and electronic devices, and they're even used in fields as diverse as dentistry and glassware.
In terms of investments and trading, precious metals are often seen as a great store of value in times of economic uncertainty and as a hedge against inflation. That said, it is also important to recognise that each precious metal has its own strengths, weaknesses and price drivers.
The differences between precious metals in aspects such as supply and practical application offer traders potentially profitable trading and investment opportunities, as well as an effective hedging vehicle.
Today, precious metals are often traded against the USD, with popular trading symbols such as XAU/USD (gold) and XAG/USD (silver). In addition to the derivatives markets, precious metals can also be bought, sold and even owned, in the form of physical bullion or coins.
Certain metals like gold and silver have been considered valuable for a long time, with civilizations appreciating them because of their rarity and appearance.
In the not-so-distant past, many coins were minted using precious metal alloys to define their value. Even today, many countries choose to hold reserves of precious metals to guarantee the physical value of their currency.
While these precious metals have always been symbols of wealth, trading in commodities such as palladium, platinum and iridium has accelerated recently due to their value in modern chemistry and manufacturing.
Prices vary considerably depending on the specific element, as well as global external factors. Prices aren't only influenced by market factors, but can also vary due to differences in the quality or grade of the specific metal.
Although many people turn to precious metals to maintain the value of their capital during times marked by economic volatility, various market factors do influence prices.
Indeed, periods of geopolitical instability in a region can drive up the price of precious metals as traders seek a more secure store of wealth than fiat currency. Metals have historically been effective as a hedge against inflation, with prices often correlating with higher inflation rates.
The prices of materials used in manufacturing and technology are affected by the global supply and demand for the goods for which they are essential. For example, the emergence of a strong middle class in emerging Eastern markets has created a strong demand for large electrical goods (refrigerators, stoves, etc.), of which silver is often a necessary component.
Conversely, technological innovations that replace precious metals with more abundant materials can cause a precious metal's price to fall.
The quality or certification of precious metals is another aspect that has a significant effect on their price.
Many metals are alloys, meaning they are mixed with other elements. The ratio of the precious metal to the alloy compound is called "fineness." You may be familiar with gold's karat number, which is a specific measure of compound fineness. The higher the fineness, the greater the value of the precious metal.
Some precious metals are alloyed with specific elements to enhance their appearance or function. In these cases, the alloy material will have an impact on the price.
Some metals used in manufacturing may have to meet certain requirements or certifications regarding their condition.
While these products are generally not volatile, damage can still occur and vendors must ensure that their goods meet trade rules and standards.
Commodity traders have a plethora of instruments at their disposal, whether they're looking to buy precious metals for trading or for investment purposes.
Spot trading is the simplest way to trade commodities. It involves buying a set amount of precious metal at current market prices, often through a centralised exchange or through a broker.
Buyers of gold, for example, in a spot market can often choose between physical delivery, often called bullion, or buying it on an unallocated basis through a bank or intermediary.
In the former case, you receive the purchased gold in the form of bars or coins. The physical purchase of gold may be a better option if you're concerned about counterparty risk or the security of your local economy.
In the latter case, an exchange or bank retains control of the gold while the buyer holds the gold in their account. The advantages of this method of spot delivery are the lack of storage, insurance costs and the relative ease of sale.
The futures market is very important for commodity traders, as a large portion of the precious metals market is traded in futures contracts.
When a buyer and seller are negotiating a futures contract, they agree on a price for the future purchase of a specific quantity of the chosen commodity. These future trades are locked in by contracts that are usually standardised and bought and sold on centralised exchanges.
Futures contracts use leverage to increase contract profits, but they also carry the risk of increased losses. Traders can use arbitrage techniques to lock in futures profits or even to sell their contract before it expires.
ETFs (exchange-traded funds) are overnight tradable funds that act as trackers for specific markets, industry sectors or commodities. The main advantage of ETFs over traditional funds is that while funds can only be bought or sold at the end of a trading day, ETFs can be bought or sold throughout the day just like stocks.
The two main forms of investment in precious metals are funds that track the spot or forward price of a metal and funds which carry shares in mining and/or production companies.
With price-following ETFs, precious metals trading is both accessible and easy. In addition, experienced traders can take advantage of leveraged or even inverse-tracked ETFs for advanced trading opportunities.
As we briefly mentioned earlier, it's possible to invest indirectly by buying shares of companies involved in the mining, refining and distribution of precious metals.
Trading in specific companies' stocks allows traders to use many of the instruments on this list, such as CFDs, options and ETFs, to take advantage of short and long-term profit opportunities.
However, trading individual metal company stocks will be more correlated to the performance of an individual company than to that of a precious metal, compared to investing in a diversified precious metal ETF.
Options contracts are a popular instrument to speculate on precious metals. In short, options contracts involve speculating on the ability of an asset to reach an exercise price by a given expiration date.
However, the option contracts available vary depending on your local jurisdiction, with key differences between U.S.-type exchange-traded options contracts and the over-the-counter contracts offered by brokers in the rest of the world.
U.S.-style options contracts are traded on regulated markets, offering call and put options to traders with the ability to close out a contract at any time.
In the rest of the world, options contracts are called "over-the-counter", meaning that individual brokers set the quotes for the contracts. These contracts cannot be cashed out early, but have a fixed amount of gain and loss based on the success or failure of the contract.
A CFD (contract for difference) is an advanced financial derivative used to speculate on the rise or fall of an asset's price.
The basic principle of CFD trading is that the difference in settlement price between the entry and exit of the trade is either paid by the broker in the case of successful trades or by the trader in failed contracts.
CFDs have no expiration date, but are subject to daily financing costs and additional overnight fees, making them more suitable for intraday trading.
A CFD is an over-the-counter contract, which means it is offered by specific brokers rather than traded on an exchange. Traders can go long or short on precious metal prices using CFDs and don't need to own the underlying assets. Contracts will generally have leverage of up to 1:30.
Trading precious metals can be ideal for those who exercise caution and good risk management. Here are some key benefits:
Conversely, precious metals trading does entail certain risks and pitfalls. Traders need to keep the following drawbacks in mind:
Most successful traders end up coming up with their own individual strategies when investing in precious metals, so here are some suggested areas to explore:
Unlike speculating or investing in the price of an asset, arbitrage aims to take advantage of price differences between different brokers or exchanges offering precious metals trading. For example, if one exchange is selling platinum spot at $955 per ounce and another is offering $966, traders can simultaneously buy and sell the precious metal for a $11 profit.
As the international commodity market is open 24/7, precious metals offer many arbitrage opportunities. However, the physical nature of these commodities can pose particular challenges, especially when it comes to arbitrage across international markets.
Some traders rely heavily on precious metal trading signals from charts and tables to try to determine future prices. For prices that are primarily influenced by market sentiment, such as gold prices, predictions based on technical analysis can generate significant profits.
Price predictions can be acted upon either by buying precious metals on the spot and futures markets or by speculating on derivative assets such as CFDs.
While the price of some precious metals is largely based on sentiment, the prices of other metals are primarily influenced by supply and demand factors. These metals tend to be used in manufacturing and technology.
Monitoring precious metals trading news, such as the scarcity or popularity of the goods in which an asset is used, or new mining regulations, can enable traders to predict the future direction of a precious metal's price.
Before concluding this guide to precious metals trading, here are some additional tips:
Precious metal market hours are: 24/7! This is possible due to the multiple exchanges around the world, which ensures that at least one market is always open, while maintaining market hours tailored to local time zones.
Even if a trader's local exchange is not open, an international exchange for precious metal trading is always open at all times.
Whether you're looking to better understand the factors that determine the prices of certain precious metals or advanced options trading techniques, it makes sense to learn as much as you can before you start trading.
Many online brokers and precious metal trading platforms provide educational tools and content to traders, while courses or books are also available for more in-depth and specific knowledge.
As with all complex markets and advanced derivatives, it's advisable to familiarise yourself with trading via a demo account, before risking any real capital. For precious metal trading, many brokers offer demo accounts so that you can get used to a specific platform, market and financial instruments at your own pace.
Precious metals trading does have economic utility, whether it's providing a solid hedge against inflation and market volatility or capitalising on ever-changing supply and demand through daily trading.
The range of trading assets available with different brokers and platforms means that there is something for every trading style. The variety of dissimilar assets within the precious metal category enhances its diversity.
The most popular metals have been a reliable store of value for thousands of years, while precious metals that are widely used in electronics and manufacturing could reach even higher values in the future.
|Brokers||Regulation||Trading platforms||Official website|
|FCA, ASIC, CySEC||MetaTrader 4 + 5|
|ASIC, CBFSAI, FRSA, B.V.I FSC, FSCA, FSA.JP||MetaTrader 4 + 5|
|FCA, ASIC, DFSA||MetaTrader 4 + 5|
|CySEC, ASIC, IFSC||MetaTrader 4 + 5|
|CNMV, FCA, KNF, CySEC, BIFSC, DFSA, FSCA||xStation|
ASIC: Australia, BIFSC: Belize, CNMV: Spain, CySEC: Cyprus, DFSA: Dubaï, FCA: United Kingdom, FSA: Seychelles, FSA.JP: Japan, FSCA: South Africa, IFSC: Belize, KNF: Poland
CFD trading comes with a high risk of losing money, it is therefore not suitable for all investors. Between 74-89% of retail investor accounts lose money when trading CFDs.
Due to the multiple exchanges operating in different time zones around the world, commodity markets are accessible 24 hours a day, 7 days a week. However, individual brokers or exchanges that trade options or other derivatives can only trade during the opening hours of their local market.
Many modern commodity trading companies have created software to initiate and track trades. Brokers who choose to use popular universal trading platforms such as MetaTrader 4 and 5 also offer mobile apps for precious metals traders on the go.
Due to the global nature of the commodities market, traders from everywhere around the world can trade precious metals in its many forms.
Investing and trading in derivatives based on precious metals can lead to potential profits for successful traders. However, trading also involves risks. Always use sound risk management and exit strategies.
Tax laws relating to precious metal trading can be complicated depending on your jurisdiction. In the UK, for example, profits are usually charged at a rate between 20-28%. However, you don't have to pay this capital gains tax if your total gains within a financial year fall below the tax-free allowance of £12,300.