The Precious Metals Market

Precious Metals – Gold Trading Overview

Gold has been used throughout history as money and has been a relative standard for currency equivalents specific to economic regions or countries, until recent times.

Gold – trading symbol XAU – is a commodity who’s spot price is traded every day over the OTC (Over the Counter). Unlike other tradable instruments like currencies, Gold is less affected by the supply/demand of physical gold and more affected by speculations in every day trades and changes in sentiment.

This is mainly due to the small quantity of Gold mining production compared to the large quantity that has already been mined and stored.

When the people who hold physical Gold feel like selling, the price drops. When they want to buy, new supply is quickly absorbed and the gold prices are driven higher.

Why would people hold physical Gold?

When banks and money are perceived as unstable and/or political stability is questionable, gold has often been sought as a safe store of value.
When real rates of return in the equity, bond or real estate markets are negative, people regularly flock to gold as an asset that will maintain its value.
War and political upheaval have always sent people into gold-hoarding mode. An entire lifetime’s worth of savings can be made portable and stored until it needs to be traded for foodstuffs, shelter or safe passage to a less dangerous destination.
Applications and Leverage

Gold has always been used as safe haven against uncertain conditions of currencies fact that tends to appreciate its value. Being traded in units of Troy Ounces, Gold has a vast array of applications in every day life, including electronics due to its durability.

Investors expecting upward price movements often choose to leverage their position. This normally happens when they borrow money by mortgaging their existing assets and buying Gold with the borrowed money. Of course the risk is much higher, since in a downward move, losing some or all the capital invested is quite close.

Gold and Silver are traded through exchanges like the London Bullion Market, the New York Mercantile Exchange (NYMEX) and the Tokyo Commodity Exchange (TOCOM).

The rapid growth of the FX industry resulted in big numbers of firms providing trading on the price of precious metals like gold through CFDs (Contracts for Difference). These are contracts between buyers and sellers who profit/lose on the price difference at contract time.

Precious Metals – Silver Trading Overview

Silver – trading symbol XAG – is also a commodity though not as widely traded as Gold. In recent times though, with the price of Gold skyrocketing, we notice increased demand in Silver trading speculations, since Silver is cheaper and available for trading.

Unlike gold, the price of silver swings between its perceived role as a store of value and its very tangible role as an industrial precious metal. For this reason, price fluctuations in the silver market are more volatile than gold.

Problem is there is not as much liquidity which is a high risk factor in large and sudden moves.

Precious Metals – Gold and Silver trading together

So, while silver will trade roughly in line with gold as an item to be saved physically (investment demand), the industrial supply/demand equation for the metal exerts an equally strong influence on price.


That equation has always fluctuated with new innovations, including:


Silver’s once predominant role in the photography industry (silver-based photographic film), which has been eclipsed by the advent of the digital camera.

The rise of a vast middle class in the emerging market economies of the East, which created an explosive demand for electrical appliances, medical products and other industrial items that require silver inputs. From bearings to electrical connections, silver’s properties made it a desired commodity.

Silver’s use in batteries, superconductor applications and microcircuit markets.

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