Silver & Gold Trading
Gold and silver are the two most liquid precious metal and are actively traded throughout the globe. Investors trade gold for several reasons bust most believe gold and silver are hedges against currency depreciation. Gold and silver trade actively in the over the counter market as well as in futures format. Gold and silver prices are quoted in US dollars per ounce.
Gold prices gyrate as investor sentiment changes in conjunction with inflation expectations as well as the strength of the US dollar. Inflation itself is the notion that a value of a basket of goods or services increases in value, decreasing discretionary income of consumers. The most notable types of inflationary assets are food, metals and energy prices which are generally excluded from the core inflation reported by the Federal Reserve.
The bulk of core inflation includes rents, housing prices, and labor costs. If the prices of gasoline increase by 25% over the course of a year, the ability of a consumer to purchase discretionary items will decline, if their ability to cut down on gasoline purchases is not elastic.
To defend against rising inflation expectations investors will naturally purchase a hard asset such as precious metals that will climb in value at a rate that is greater than inflation. One of the most common assets to protect an investor’s portfolio against rising inflation is gold.
One of the most common and efficient ways for investors to initiate a position in gold or silver is by using retail over the counter platform. Forex brokers have become one of the easiest ways for the individual investor to purchase precious metals. In these cases, an investor is not actually purchasing physical gold or silver but rather gaining exposure to the change in the price of one of these precious metals.
In this case, you can purchase a specific dollar amount of gold or silver as opposed to a volume of the precious metal. For example, when you want to purchase gold you can buy $100 of gold as opposed to figuring out how much 100 ounces of gold will cost you to purchase.
A second way to speculate in gold trading is to use the futures market. This process is slightly more difficult as an investor will need to purchase a specific volume of gold based on the available futures contracts. Generally, each gold futures contract holds 100 ounces of gold.
The total value of each futures contract is 100 multiplied by the price of gold. With gold prices near $1,250 per ounce, the notional value of a futures contract is close to $125,000. Futures contracts can be purchased using a margin agreement which allows investors to use leverage and only post a fraction of the money needed to buy physical gold.
Gold and silver exchanges traded funds are also available and they trade like stocks and provide direct access toward speculation on gold prices. The creation of Gold ETF’s have increased the liquidity of gold, and increased the volume of gold traded throughout the globe. The American Stock Exchange (AMEX) is the primary trading exchange for Gold ETF’s. Gold ETF’s contain assets which include gold futures contracts and physical gold.
Lastly you could purchase bullion itself, and store it in a vault. Gold and silver are the most liquid metals traded and could provide investors with a natural hedge against rising inflation. Although there are numerous ways to initiate positions using gold and silver, one of the easiest and most efficient is by purchasing a specific volume which can be accomplished using the platform provided by forex brokers.