The History of Trading in Precious Metals and Forex

Precious metals like gold, silver, bronze, and palladium have been in human history for millennia. Their relative rarity and general hardness made them ideal to be used as materials for coins.

Even after other things were used as coinage and legal tender, these precious metals were the standard of value for the stand-in coins. First, the was the silver standard from circa 3000 BC from ancient Sumer until 1873. Then, it was taken over by the gold standard from then until 1971 in some places around the world.

Though pegging your currency’s value to the value of the precious metal is a foregone conclusion now. This lets governments and central banks have greater economic control in limiting the amount of print money in times such as inflation or to print more if needed like a stipend to their populace through hard times. The coins and banknotes themselves aren’t made from precious metals anymore either, but cheap alloys and paper mixed with plastic respectively. Still, this doesn’t mean that precious metals like gold have lost any of their value in the eyes of individuals and corporations alike. There’s a reason why precious metals are still viewed as precious and quite as valuable.

They are so valuable in fact, that you can invest in them right now.

What Makes Metals Precious?

Precious metals got that monicker not out of sheer luck. They’re precious for a multitude of reasons. First, as mentioned earlier, they’re viewed as a safe investment when markets get volatile due to major external events. Second, they don’t rust, nor do they decay, so they may gain value and appreciate over time rather than lose value and depreciate. Third, they are deemed pretty, so they are used a lot in jewelry and other ornamental pieces for their beauty, giving them additional value after being wrought into a new form. Fourth, they have multiple uses in the industry such as silver being used for medical equipment and surgical tools, gold being used for orthodontics, and copper, an industrial metal, is being used for the electrical grid. These examples prove that these precious metals are not going out of style or out of use any time soon.

Investing in Precious Metals and Forex

Nowadays, precious metals like gold are seen as a safe investment to supplement investing in riskier instruments like forex that tend to fluctuate more and need limits to minimize their risk. Because of their relatively limited supply and difficulty extracting them, they tend to not fluctuate as much and retain their value. Currencies nowadays are no longer pegged to any standard, so they can change as a specific government or central decides to print more or less of it to combat inflation or unemployment for example.

The most popular precious metal to trade in is gold with silver being a close second due to its medical applications. This can even mean that silver can outpace gold in value sometimes as it has more industrial demand. At the same time, platinum and palladium aren’t as popular with investors, and they usually follow the same trend as the other, so investors usually pick one of the two to invest in.

You can see the current trading values of commodities such as gold, silver, copper (an industrial metal), and others.

Benefits of CFDs for Precious Metals and Forex

CFDs, or contracts for differences, are a way to trade in instruments, like gold and other precious metals and forex, without owning them. The iFOREX platform allows you to trade in instruments that way. CFDs give traders greater flexibility, as they don’t own the items, so you don’t have to hoard gold like a dragon under a mountain to trade in precious metals and forex, since you don’t need a safe for stacking banknotes either. Also, CFDs give greater liquidity to sell and buy instruments like gold and other commodities whenever they think that it is for the best on the platform.

These flexibility and liquidity give traders a chance not only to make money when the value of an instrument goes up but also when it goes down. This is called selling short, and essentially, you forecast that the value of that instrument will go down. Even gold and other precious metals, despite their relative safety as an investment, can go down. This is why you need to keep yourself updated with the current trading values, set proper limits, and check the economic event calendar for major events that may cause fluctuations in their value.

You can see the event calendar and other news sources compiled to stay on top of trading news about precious metals and forex to make more intuitive investments.

Factors Influencing the Precious Metals’ Value

Precious metals, like any other instrument, can appreciate or depreciate thanks to several distinctive factors. That’s why it’s important to research and analyze investing in them like with any other instrument to ensure a minimized risk and a maximized return on investment.

The main factors are supply and demand. A decline in a specific precious metal excavation can lead to its value increasing. A reason for shorter can be political instability in a certain ore-rich country, and that is why it is important to stay updated on the matter. The demand can also influence its value. It mainly stems from the demand jewelry industry, the tech industry, and investment firms. So, following if the demand for electronic chips, wedding rings, and gold as collateral for government loans are all viable news to determine if the demand for precious metals goes up or down, and which ones do fluctuate more. With the rise of the global middle class and the demand for luxuries as well as computers, demand for precious metals will steadily increase over the long term. You can check the Bloomberg site that compiles articles of events that can affect it.

As a side note, the automobile industry is highly reliant on silver, platinum, and palladium. Any change in the supply or demand of the production of vehicles can heavily influence the price of all three of these precious metals.

On top of that, as mentioned before, many traders see precious metals as a “safe haven” for their investment money. When there is high market volatility, traders may prefer to invest more in precious metals over forex, for example, increasing the demand for them. Low market volatility may have the inverse effect, lowering the demand for them and increasing the demand for forex for example.

Just like how the major currency pairs in forex include the US dollar as one of the pairs, effectively pricing the other currency against it, most precious metals and forex are also priced in the US dollar despite often being mined in other countries. This makes it imperative for traders to also monitor the value of the US dollar to better forecast the value of precious metals as it can fluctuate alongside it.

Additional Instruments besides Precious Metals and Forex

You can trade in the CFDs of one specific precious metal based on the analysis you made based on the relevant news about it. However, you can also invest in related instruments to increase your return on investment when you consider it a good way to trade in more.

You can invest in the CFDs of mining stocks of publicly traded companies. Therefore, you can invest in gold while also investing in the company that mines it when you think that they may both appreciate it.

You can also make a less risky investment by investing in a CFD of an ETF, or exchange-traded funds that have both precious metals and forex as well as stocks of mining companies and related businesses. ETFs let you invest long-term in a lot of different instruments at once for a safer investment as you don’t put the proverbial eggs in one basket. However, they also offer fewer returns. Still, it may be a wise decision when market volatility is low to absorb the hit on the value of precious metals better and lose less of its value.

Trading with a Leverage with Precious Metals and Forex

Though trading with leverage is riskier than trading without it at any instrument, it does allow you to invest less to possibly make a bigger return than you could’ve gotten without it. Precious metals and their relative stability compared to forex makes them ideal candidates for instruments to leverage. Still, it is wise to place limits on them since fluctuations in any market can occur.

The iFOREX platform lets you trade in CFDs with leverages of up to 1:200 of the money invested. Meaning, that with a smaller monetary sum, and a greater risk, you can make investments you couldn’t have made otherwise. There’s always room to improve trading knowledge.

In Conclusion

Precious metals are a great way to diversify your investment portfolio when it has a lot of more fluctuating instruments like forex. They will increase the value when markets are volatile as more traders will invest in them and depreciate when the markets are not volatile as more traders will not consider needing that much of a trading safety net. When investing in precious metals, make sure to track their values, the supply along with the demand of these metals in the relevant industries like electronics, jewelry, and automobiles, and to follow the US dollar value as these are mostly traded in that currency.