Gold, silver and other precious metals are some of the most valuable commodities on the planet. They are also some of the most traded. Futures contracts are one of the most popular instruments for trading these precious metals. Let’s take a closer look at some of the basics of precious metals, how they are traded and the advantages of investing in precious metals.

What Are Precious Metal Commodities?

Precious metal commodities are rare metals that have an elevated economic value. This value is tied to factors such as scarcity, industrial application and store of value properties. These metals are sought after by investors because they act as a hedge against fiat currency, particularly during periods of inflation or systemic financial problems.

What Are Some Examples of Metal Commodities?

Precious metal commodities that are commonly traded include gold, silver, platinum and palladium.
  • Gold is durable, malleable and a conductor of heat and electricity. This gives it industrial value in addition to its value derived from being aesthetically pleasing and an essential element of jewelry.
  • Silver’s use in batteries and superconductors makes it both industrial useful and a traditional store of value, like gold. However, silver prices tend to be more volatile.
  • Platinum is an industrial metal like silver and has historically seen heavy use within the automotive industry, where it has numerous applications. Platinum is the most volatile of all precious metals and is only mined in two countries, which exposes it to cartel pricing.
  • Palladium is regarded as the less expensive sister metal to platinum. It has been used in electronics, dentistry, the chemical industry and – like the other 3 – it’s also used in the jewelry industry.

How Are Precious Metal Futures Traded?

Precious metals can be purchased in physical form (such as gold bars/physical gold). Investors can buy certificates which confer ownership without physical possession. They can also be traded via Exchange Traded Funds. Yet perhaps the most popular way to trade precious metals is within the futures market. Futures contracts for gold and other metals can be purchased on major trading exchanges. Contracts specify a certain amount of metal, for a certain price, to be delivered on a specific future date. Traders can make money on precious metal futures by correctly predicting price action based on the factors that are known to influence the value of precious metals (supply and demand, economic crises, war, industrial use etc.).

What Are the Benefits of Investing in Precious Metal Futures?

Futures contracts offer the greatest leverage and liquidity for those investing in precious metal futures. This means investors can control a larger position with lower capital requirements, increasing the possibility for outsized returns. Precious metals also offer advantages over equities. They can act as a hedge, especially during periods of inflation or rising interest rates. They can also help diversify a portfolio that is heavy on equities, bonds or funds. Metals also have intrinsic value, thanks to their industrial utility and longstanding use in the jewelry industry.

What Affects the Price of Precious Metals?

When the US dollar is strong, it often has a dampening effect on the value of gold and silver. Conversely, when the dollar is weak, gold and silver often strengthen. Gold and silver tend to rise during times of economic or political uncertainty and can act as a hedge against traditional fiat currencies. When investors perceive that currencies are becoming devalued, they may move toward gold or silver as a safe harbor investment. Unlike paper currencies, precious metals have inherent value. Supply and demand also influence the price of precious metals. This demand can come from central banks or government vaults (which comprise some of the world’s largest buyers of gold). Demand also comes from investors, institutional and retail, while supply is tied to global mining operations. Finally, fluctuations in industrial demand for precious metals can also exert significant pressure on prices.

How R.J. O’Brien Can Help You with Precious Metal Futures Investing

R.J. O’Brien is a leader in commodities and precious metals trading. Our experts can help guide beginners and provide more sophisticated traders with the actionable insights they need for successful investing in metal commodities. In addition to offering guidance from professionals, we also offer advanced trading tools and a library of information, both of which can help ensure that traders in precious metals have the tools and information they need to succeed. If you’d like to learn how to invest in precious metals, please reach out to R.J. O’Brien today.