Introduction to Trading Gold & Silver

Gold

Gold is a precious metal and malleable in nature. Historically, it has been a very valuable metal due to its precious nature and used as a medium of exchange or as currency.

Gold is popularly used in the making of jewelry.  What more, gold is also very useful in industrial application. As it is a good conductor, very malleable and highly ductile, it is used in electronics, typically as wiring.

Most electronic devices which we use contain elements of gold in their components including mobile phones, televisions, GPS systems, calculators, and computers.

Other notable uses include glassmaking, medical treatments and dentistry.  It’s important for you to know that gold is viewed as a safe-haven investment in the face of slowing global economies and recession.

Other precious metals notably silver, platinum and palladium provide alternatives to gold, given the high price of gold.  These other metals are able to provide some of the physical properties of gold at a lower price.

Supply & Demand & the Factors Affecting Price

The largest gold producing nation in the world is China. Other notable producers are Australia, the US, Russia, South Africa, Canada, Ghana, Indonesia, and Uzbekistan. The largest importing nation of the precious metal is India, with their main use being for jewelry.

In terms of the fundamental factors which affect gold prices, there are a number of things to consider.  Gold prices may react differently depending on different economies and this, in turn, stems from the different uses of gold from different nations and regions of the world. When looking at gold prices, it is important to look at the dollar.  They share an inverse correlation with each other, so if the dollar were to increase in value, gold would likely decrease in value as a result and vice versa.

You may see increases in gold prices in times of recession and at times of economic prosperity. At times of economic recession, there may be an increase in demand for gold as a hedging tool against inflation or against currency devaluation.

However, there may be increases in demand for gold when an economy is experiencing growth as there may be more consumers with the disposable income to purchase luxury goods, notably jewelry. In terms of the movement of gold, it is used as a means of hedging.

These fundamental factors need to be weighed up in order to paint the best picture for you on how to trade gold.

Silver

Silver is a white metal.  Like gold, it is also a precious metal.  As well as its popularity in the creation of jewelry, silver has a number of industrial applications and uses in consumer goods.

Silver is the best electrical and thermo-conductors amongst all metals, making It so useful in electrical connections in a wide range of electronic appliances usually as a membrane switch.  Silver also has medical uses as a disinfectant. As mentioned earlier, silver is a notable substitute metal for gold, as it carries some of the same properties as gold, yet is less expensive. It is important for you to keep this in mind when looking at all the other metals.

Supply & Demand & the Factors Affecting Price

The major silver producing nations of the world include Mexico, Peru, China, Australia, Chile, Russia, Poland, as well as the US and Bolivia.  China is one of the world’s largest importers of the precious metal in the world, which has seen an increase with the massive growth in their economy.

One of the reasons for their silver imports is for investment purposes. Like gold, India is a very prominent importer of silver or the purpose of jewelry making.

These are some of the major players for you to keep an eye on in light of the silver markets with supply and demand side factors which may impact upon producers and the consumers respectively.

Usage of Silver

As silver has a wider use for industrial purposes, the price of silver is affected by changes in economic circumstances, with a strengthening economy leading to increased demand for manufacturing, which in turn may lead to increased volatility for the metal when compared with Gold.

Be aware that gold and silver are finite resources, meaning that they should always be in demand and could be even more expensive in future as reserves of each of these are further depleted.  Along with this, an important consideration regarding the gold and silver prices is in the scrap market.

Unlike soft commodities and grains, metals, gold and silver can be reused, so the supply of gold does not hinge entirely on that which is freshly mined from the ground.  This scrap metal trade may impact their respective markets and potentially even more so than that which is mined.

Things to Take Away

  • When trading gold and silver, you must be aware of what they are both used for the major producing and exporting nations, as well as the big consumers and importers.
  • It is vital to know about the use of these precious metals not only for industrial use but for hedging purposes against factors such as inflation and the strength of a currency.
  • The trade in scrap metals is a vital factor for you to be aware of in the market for gold and silver.