Precious Metals

Trading precious metals allows investors to take advantage of volatility, hedge against market downturns and diversify their portfolios. UK brokers offer precious metals trading through multiple vehicles, including CFDs, futures, and options. This investing tutorial explains how to trade physical metals online, from understanding prices, opening hours, and taxes to the top brokers, platforms and apps.

What Are Precious Metals?

Four hard commodities are classed as precious metals: gold, silver, platinum, and palladium.

These metals are considered precious due to their high economic value, which is partly a result of their scarcity. Gold and silver have been used as stores of value or to make luxury goods since ancient times; today, all four metals are also used to manufacture a large range of products, from computer hard disks to dental filings.

Precious metals are often known by investors as ‘safe havens’ since they tend to retain their value, or even appreciate in value, during market downturns.

The value of precious metals markets has increased significantly during the 21st century, reaching around $275 billion in 2021 and forecast to hit $400 billion by 2028.

This has been driven in part by the economic growth in developing countries increasing demand for jewellery and other products that use precious metals. However, each precious metal has its own attributes and price determinants.

Precious metals are usually measured in troy ounces (t oz), which weigh in at around 31.10 grams, compared to standard 28.35-gram ounces.

Gold

Investors often shift towards trading gold during periods of instability as a hedge against economic uncertainty, though the metal is also known for its volatility.

Gold has been as a symbol of wealth throughout history, but it gained special geopolitical significance in the late 1800s when several powerful countries adopted the gold standard, fixing the value of their currency to the price of gold. This made the gold standard the predominant currency standard internationally before the free-floating fiat money system began in 1971.

Today, it is used mainly as a store of value or to produce jewellery, electronic devices and industrial components.

Gold reached its all-time high above $2,000 per troy ounce in August 2020.

The symbol for gold is XAU.

Silver

Silver is also counted as a ‘safe haven’; it is also the best thermal conductor of any of the precious metals, making it ideal for electrical appliances as well as jewellery, silverware, and mirror manufacturing.

Silver dollar coins were minted in the US in 1794, before being replaced by gold around 80 years later.

Silver reached its highest price in 2011 when the value reached $49.51 per troy ounce.

The symbol for silver is XAG.

Platinum

Platinum was discovered in 1557, but its uses went unnoticed until the 1700s. Today, the precious metal is mainly used within the automotive industry as a major component of catalytic converters in fuel engines.

It is typically more volatile to trade than gold due to its scarcity and smaller production volumes.

Platinum hit an all-time high in 2008, with prices reaching up to $2,253 per troy ounce.

The symbol for platinum is XPT.

Palladium

Palladium was discovered in South America in 1803 after initially being mistaken for platinum, but interest in this metal did not really take off until the 1980s.

Today, palladium is used in many manufacturing processes, including electronics, chemical applications, and groundwater treatment. It is also commonly used in the jewellery, medicine, and dentistry industries. As with platinum, the largest industrial use for palladium is in the creation of catalytic converters due to its durability.

Palladium is considered to be scarcer than platinum and reached the highest price of the four precious metals with February 2022’s record high of $2,981, though it fell from this peak to a level below gold shortly afterwards.

The symbol for palladium is XPD.

Today’s Gold Chart

Factors That Impact Prices

Supply And Demand

Like any other asset, precious metal prices are deeply influenced by supply and demand. Factors which increase demand or lower supply will lead to price increases, and vice versa.

In recent years, rising demand for jewellery in developing countries like China has driven demand for gold, silver and platinum.

The supply shocks caused by mine closures during the Covid-19 pandemic also led to large price increases, with palladium going from $1,519 in 2019 to $2,179 in 2020.

Conversely, an economic downturn would dampen demand for jewellery, and new precious metal ore discoveries could increase supply, lowering prices.

Technological Advances

Precious metals are highly prized for their use in the manufacture of components such as catalytic converters, and this drives much of the demand for these commodities.

The development of new products that contain precious metals will increase demand, though advances that make existing products redundant could have the opposite effect.

Inflation

Precious metals are often referred to as a ‘safe haven’ during times of economic instability such as rising inflation. As their supply is limited, precious metals usually hold their value well during periods of high inflation. This can in turn increase the demand and drive price rises.

For example, demand for gold increased by 12% during the period of high inflation in the first half of 2022, compared to consumer price increases of 9.1% in the same period.

Geopolitics

The common feature of precious metals is scarcity.

The majority of production takes place in only a few countries, and often the same countries are the top producers of more than one precious metal – South Africa, Russia and China are among the world’s top producers of gold, palladium and platinum.

This means geopolitical events affecting supply from one source, such as wars or international sanctions, will have a large influence on overall prices.

Extreme Weather Events

Mining and moving ore is an intensive physical process that can be disrupted by severe weather events such as storms, flooding, wildfires and so on.

As well as physical damage to mines, these can lead to labour shortages, disrupt the supply chain, deplete water sources necessary for mining, or otherwise make it dangerous or costly to reach the ore.

Since this type of weather event is on the rise with climate change, investors should monitor the situation in the main countries producing the precious metals they trade.

How To Trade Precious Metals Online

Retail traders can use several vehicles to speculate on precious metals:

CFDs

Contracts for difference (CFDs) are derivatives in which one side pays the other the difference between an asset’s price when the contract begins and when it expires.

Traders can adopt long or short positions with CFDs and make leveraged trades, allowing them to boost the trading power of a relatively small stake.

Pepperstone, for example, offers CFDs on the four precious metals with leverage up to 1:20, tight spreads and no commission fees. Traders can also use the broker’s automated software to execute trades based on technical rules.

Stocks

Another way to gain exposure to precious metals is via indirect investments in the stocks of associated companies. This includes those involved in the production, exploration, or distribution of precious metals, though the share price of these firms may not directly correlate to the trading price of precious metals.

There are many precious metal stocks listed on the London Stock Exchange (LSE). This includes Fresnillo, a leading producer of silver and gold based in Mexico, and Hochschild Mining, with mines based in Argentina and Peru.

Outside of listings in the UK, you can access global shares on financial exchanges including Australia, the US, and Canada.

ETFs

Exchange-traded funds (ETFs) are baskets of securities that usually track a specific index, sector, commodity, or group of assets.

Precious metal ETFs usually comprise shares of mining firms and other companies that produce, process and trade the metals, and they tend to be less volatile than trading companies individually as extreme movements from individual securities are balanced out.

Major precious metal ETFs include Invesco Physical Gold ETC, iShares Silver Trust ETF and the WisdomTree Physical Precious Metals UCITS ETF.

Futures

Futures are derivative contracts that require parties to purchase or sell an asset at a pre-determined future price on a specific date.

Commodities futures may require physical delivery when the contract expires, so most retail traders opt for cash-settled futures, which do not. Many brokers offer margin trading on futures contracts, allowing traders to magnify relatively small movements.

IG Index provides gold and silver futures trading opportunities.

Options

Options contracts work in a similar way to futures contracts, with a key difference: the contract buyer has the right but no obligation to exercise the contract when it expires, meaning losses will be limited to the premium paid for the contract.

There are two styles of options: European, which can only be exercised when the contract expires, and American, which can be exercised at any point before expiry, allowing the trader to realise profits from favourable price movements.

Spot

Spot trading simply refers to buying or selling the underlying precious metal at the current market price, usually denoted in USD.

This may involve physically buying and selling the precious metals in bullion form, though many brokers also offer unallocated trading with no physical delivery or derivatives such as CFDs at spot prices.

FXTM, for example, provides gold and silver spot metal trading opportunities with competitive spreads as low as 0.4 pips on the XAG/USD pair.

How To Compare Precious Metals Brokers

• Regulation – It is best practice to trade with a broker that is overseen by a respected financial regulator such as the Financial Conduct Authority (FCA). Licensing from this reputable body provides a greater degree of protection to retail traders, including negative balance protection and segregated client funds.
• Trading Platform – Precious metal brokers offer different trading platforms, including bespoke software such as the eToro web solution or third-party terminals like MetaTrader 4 (MT4) or MetaTrader 5 (MT5). Look for features such as customisable charts, watchlists, signals, and automated trading. The best precious metal brokers will also offer mobile app compatibility so you can invest in metals on the go. Note that metal symbols may vary between platforms.
• Vehicles – Brokers may offer precious metals trading via several investment vehicles. This may include CFDs, ETFs, futures, options, and shares. Check the brokerage offers the trading product that aligns with your trading timelines and strategy.
• Fees – Costs vary between precious metal brokers, though several excellent firms offer commission-free investing and/or tight spreads. Pepperstone, for example, offers spot gold trading with a 0.13 minimum spread.
• Deposit Methods – Sign up with a precious metals broker that accepts fast and affordable deposit methods that works for you. You should also pay attention to the minimum deposit requirements – keep the size of your trades limited when you are starting out.
• Demo Accounts – Demo accounts are invaluable when trading volatile assets like precious metals, as they allow you to test and refine your strategy without risking real cash. Leading firms also provide courses and books on trading precious metals with information on volumes and the latest news.
• Customer Support – The best precious metals brokers offer reliable and accessible customer support through live chat, email or telephone. Some of the top brokers offer 24/7 or 24/5 support from human customer service assistants.

Trading Hours

Precious metal trading hours depend on the exchange, asset and broker. Exchanges usually offer trading on precious metals 24/5, and most brokers follow suit, though the exact start and finish times vary.

Bottom Line On Trading Precious Metals

Precious metals are a class of hard commodities that offers opportunities with both high volatility and counter-market price movements, making them both a safe haven asset and potentially a high-risk, high-reward trading instrument.

As some of the most popular commodities, precious metals are widely available at online brokers. Precious metals brokers will offer different trading vehicles, fees and features, so choose the one that best suits your trading style. See our ranking of top-rated brokers with precious metals trading to get started.

FAQ

What Is Precious Metals Trading?

Precious metals trading involves speculating on the market price of gold, silver, platinum, and palladium. The commodities are scarce, and prices are influenced by various factors such as inflation, supply and demand, and the value of the USD, amongst others. Retail investors can trade precious metals through CFDs, ETFs, stocks, futures, and options.

How Do I Choose The Best Broker That Offers Precious Metals Trading?

The best brokers offering precious metals trading will have competitive fees, responsive customer service, FCA regulation, and access to suitable tools such as a stable platform, technical analysis features, and copy trading. Head to our list of leading precious metals brokers to find a suitable provider.

Is Trading Precious Metals Worth It?

Trading precious metals can be an attractive prospect, with a volatile market providing opportunities to create profit. All four precious metals are useful resources across various industries, meaning their demand is not likely to diminish any time soon. They also attract investors during periods of market instability due to their status as ‘safe havens’.

Is It Risky To Trade Precious Metals?

All investments have an element of risk, and precious metal trading is no different. The price of precious metals can fluctuate significantly due to supply and demand changes, economic uncertainty, technological advances, the value of the US dollar, and more. Top-rated precious metals brokers will offer risk management tools, such as stop loss and take profit orders.

How Can I Invest In Precious Metals?

There are various instruments available to trade precious metals online. These include futures and options contracts, exchange-traded funds (ETFs), contracts for difference (CFDs), and spot trading. CFDs are popular with short-term traders while ETFs may suit traders with a longer investment horizon.

Article Sources

Precious metal forecasts

Gold all-time high price data

Precious metals market size and trends

LBMA precious metal benchmarks

Pepperstone gold trading fees