How To Invest In Precious Metals?

Gold and silver prices fluctuate daily and are one of the most active segments of the metal markets.  These metals are considered precious metals along with platinum and palladium. Precious metals are used to store wealth as jewelry and in some cases as industrial metals. Gold and silver are the most liquid precious metals and provide traders with a safe-haven asset that also outperform during periods when inflation is rising.

What is a Precious Metal?

A precious metal is one that has significant value and is generally used to store wealth.  Gold is the most popular and liquid precious metal and is usually used for jewelry.  Other precious metals such as silver and palladium are also used for jewelry but can also be used as industrial metals. Silver is one of the most common elements in solar panels, while palladium is used in cars for catalytic converters.

Gold and silver are quoted in U.S. dollars. This means as the value of the U.S. dollar increases relative to other currencies, gold and silver prices become more expensive.  For example, if the value of the dollar rises relative to the Yen, the price of gold in yen terms becomes more expensive.

When Should You Trade Precious Metals?

Gold and silver are alternative commodity assets that can be traded as an asset that is non-correlated to stocks, bonds, and other commodities.  Gold and silver fluctuate with the value of the dollar. Many traders view gold and silver as a currency. In fact, if you want to hold gold or silver you for a period beyond two-business days, (spot), you will have to pay forward points. Gold and silver have active forward rates that allow you to receive or deliver gold or silver at some point in the future.

Precious metals tend to increase in value when the dollar declines or when there are geopolitical issues that might make paper currency vulnerable to a collapse. In addition to acting as a hedge when adverse market conditions appear, precious metals also rise in value when inflation occurs.  Inflation occurs when prices of goods and services rise. If they rise faster than your income you will not be able to purchase everyday items which will erode consumer confidence. Gold and silver generally rise when inflation occurs allowing you to increase your wealth to offset an increase in inflation.

 

Gold and silver are the most liquid precious metals.  They are used to store value, as well as for jewelry and other industrial uses. They trade similar to currencies and are often viewed as a safe-haven asset when geopolitical risks occur. Gold and silver are quoted in U.S. dollars, and when the dollar rises, these precious metals become more expensive in other currencies. Gold and silver prices usually rise when inflation rears its ugly head and can be viewed as a hedge to rising inflation. Gold and silver trading is generally non-correlated to the movements of stocks, bonds, and other commodities.

FG Editorial Team
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