An Overview of Precious Metals and their Price Determinants
(eToro Blog) The world’s three major precious metals are gold, silver and platinum. Though not the most “precious” of the precious metals, when you do hear that term you automatically think of “gold” and for good reason; as jewelry, it is well known for its durability, malleability, and conductibility, but it also has applications in industry including electronics and dentistry. Moreover, much as it has been over the past centuries, it is considered a universal form of currency.
Gold’s value is in a state of constant flux, determined primarily by market players nearly every hour of every day. It is far less affected by the first law of economic, i.e. supply and demand, than it is by investors’ sentiment. Newly mined gold supplies are exceedingly outweighed by the volume of existing gold supplies, and hoarders can drive prices lower simply by selling off their supply, while buyers readily buy new supply as and when it comes available.
There are three key reasons why gold has become a favorite commodity among investors, namely global economic uncertainty, as a hedge against inflation, and during times of political turmoil. Of the three precious metals, in general gold tends to be the least volatile among them, though there have been recent periods of notable exceptions.
Silver is the most volatile of the three precious metals because unlike gold it has very definitive and tangible applications as an industrialized metal and to a somewhat lesser extent as a store of value. As a factor of supply and demand in industrial applications (i.e. batteries, electrical connections, medical products, appliances, etc.), the price fluctuations can be relatively strong, while silver trade as a hoarded commodity is generally in line with gold.
Platinum is the least volatile of the precious metals, and like the others is traded on a near continuous basis in the commodities markets. Because it is much rarer than gold, platinum generally is priced much higher, but other determinants of the price including its various applications in industry, with the highest demand coming from the automotive sector. Like gold and silver, it also has great demand as a jewelry basis, and to a lesser extent it is used in petroleum refining and the computer industry.
Why not join the treasure hunt? OpenBook traders can buy and/or sell both gold and silver. Trading commodities is not for everyone, and just as in currencies or equities trading, there are risks involved but there is also great potential for profit as several of OpenBook’s top traders will tell you. What’s your experience with commodities trading? If you have advice for a commodities newbie sitting on the fence, what would it be? Please feel free to share your comments in the box below.
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