Intermediate

Mastering commodities

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Deep dive on metal markets

4-minute read

In this lesson, we outline what moves metal prices, take a closer look at gold, and reveal how to go about trading these commodities.

Recap: Metal markets

Metals are a diverse group of materials. Some are used in industrial settings, such as manufacturing and construction. Others are considered as precious metals and are used more in jewellery and for investment purposes, although precious metals such as silver do have various industrial uses too.

Metal markets therefore are listed in two main types:

  1. Precious (such as gold, silver or platinum)
  2. Industrial (such as aluminium, lead or copper)

The prices of these metals can represent different things. Copper, for example, is used heavily in electronic equipment, wiring and motors. When demand for copper is high, then lots of things are being built – so the metal is often used as a barometer for general economic health.

Meanwhile, gold has value in jewellery, but is also often seen as a 'safe haven' by global investors, so may see its price rise during periods of economic instability or decline.

Which metals can you trade?

Metals commonly traded as commodities include:

  • Gold
  • Silver
  • Platinum
  • Copper
  • Nickel
  • Aluminium
  • Palladium

There are also base metals such as zinc and lead, and minor metals. These are only traded in small volumes, although both cobalt and molybdenum metal contracts are now featured on some exchanges. While other metals such as lithium may have important applications, they aren't currently widely traded in financial markets.

What moves metal market prices?

As with every financial market, metal prices are driven by supply and demand. Or, more often, expectations of future supply and demand.

A large service sector has grown around researching, reporting and consulting on virtually every individual metal. Many websites now report on the movement of metal prices – but considerable price volatility can result from factors such as the discovery of a new deposit or the development of a new application which increases the demand for a particular metal.

To improve your metals trading, you'll want to learn the specific extraction and production patterns for your chosen assets, as well as the nature of varying demand from industrial consumers. There are a range of factors that affect levels of supply and demand, including:

Supply

  • Cost of extraction/production
  • Cost of transport and storage
  • Government policy, such as taxes, regulation and subsidies
  • Monetary policy
  • Personnel issues, such as mining strikes
  • Natural disasters

Demand

  • Scale of infrastructure developments
  • Activity of construction/manufacturing industries
  • Availability of alternative/cheaper metals
  • Market volatility

Gold

Gold is valued for its inherent lustre and malleability for jewellery, but also for its engineering and electrical properties.

Unlike the majority of other metals, traders also consider gold because it is viewed as the ultimate 'safe haven', usually weathering market turbulence and retaining its value in periods of economic decline.

To this point, gold offers diversification from other commonly-traded markets. It generally shows an inverse correlation with the US dollar and, in line with its safe-haven reputation, gold has historically moved independently of stock and bond market prices as well. Meanwhile, it has tended to correlate positively with safe-haven currencies such as the Japanese Yen and the Swiss Franc.

Thanks to its finite supply, many traders believe that gold will retain value in the long term in all conceivable circumstances. Increased demand can push prices up, which is what happened in 2020 when economic uncertainty surrounding the coronavirus pandemic caused market speculators to take a 'risk-off' mindset.

Ways to trade or invest in gold

Many speculators focus on trading the current spot price of gold, which is based on the price of the most active futures contracts on the COMEX (Commodities Exchange) in New York. Because these futures contracts are actively traded in a central location every single day, they provide the most accurate, up-to-date gold prices.

FOREX.com's spot trading is based on the actual price of gold, as opposed to an exchange-traded product. Spot gold and silver trading is available 23 hours a day from 6pm ET Sunday through 5pm ET Friday. Trading is closed from 5pm to 6pm ET daily. Spot gold and silver trading also follow CME holiday closures.

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Test your knowledge

Question 1 of 4
If you wanted to take an inverse position to the US Dollar, which metal is likely to be the most appropriate?
  • A Silver
  • B Gold
  • C Copper
Question 2 of 4
Which of these metals is not among those commonly traded?
  • A Palladium
  • B Nickel
  • C Lithium
Question 3 of 4
Which of these metals may be a useful barometer for economic health?
  • A Copper
  • B Platinum
  • C Silver
Question 4 of 4
Which of these markets has gold traditionally moved most independently from compared to the others?
  • A Stocks
  • B Japanese yen
  • C Swiss franc