In today’s markets, nearly all precious metals including gold, silver and copper among others, can be traded on derivatives trading platforms while energy commodities led by Crude Oil are also popular with stock and currency traders. In this article, we provide some insights on how to approach these intriguing markets, which unlike many traders assume, are very different from trading currencies.
We will try to illustrate this using the most popular commodities among CFD traders: gold, silver and crude oil.
Gold has long been used to store value. It is the world’s oldest store of value and some governments continue to invest heavily in gold bullion to date. Therefore, when global economies seem to be plummeting, the price of gold tends to rally. Historically, central banks valued their currencies against the gold bullion reserves. However, this policy, famously known as the gold standard changed in the 1970 following the introduction of fiat currencies. These fiat currencies primarily the US Dollar, now compete with the price of gold.
And with governments able to manipulate the flow of fiat currency in their economies, this also gives them an indirect influence on the price of the yellow metal. For instance, when a government launches a quantitative easing program by buying assets in a bid to inject money in the economy, this weakens the demand for that currency, which in turn results in a massive rise in the price of gold. Case in point, the gold rally of early 2010’s during the period US announced a series of QE programs.
These are but a few elements that traders can monitor in a bid to trading the yellow metal profitably.
WTI Crude Oil
We have picked WTI Crude Oil “the lite crude” because it is the most popular energy commodity in the global trading community. But generally, oil prices are influenced by two major forces. Supply is one of them, and the other is production. We know that some might ask, “what about demand?” The simple answer to that is that while it does play a role, it is not as significant as the other two factors. The simple reason for this is that there will always be demand, and its influence on the price of oil is closely tied to supply.
Now, note that oil being a commodity, is traded in the futures market, which means that traders look at the potential supply of this black gold 3-6 months into the future. This is where the importance of production comes in. If production rises today, then in a couple of months, the supply will be up and this affects the price of crude oil. On the other hand, if a major oil producer like Saudi Arabia announces that it will be cutting production, then this shifts the outlook for future supply of the precious commodity, which in turn boosts the price.
Also, geopolitical instability (wars, trade tensions and border conflicts) in top oil production countries can signal potential declines in the production of Crude and Brent oil. That is why this factor also is ranked high in the oil trading markets.
Whenever the topic of silver crops up during a conversation, most people think of luxurious jewelry and serve-ware. However, the use of silver stretches further beyond these popular applications. In fact, silver has become one of the most tradeable commodities in the financial markets.
In today’s markets, traders talk about gold and silver, as if it was a single commodity. In part, there is a valid argument to this view. Both of their prices tend to be correlated. When the price of gold goes up, the price of shiny silver tends to follow.
The main reason behind this correlation is that they are both affected by the same factors, most of the time. Just like gold, silver is a notable store of value. So popular that back in the ages, most coins were made of silver. Silver coins were so valued that just 30 of them were enough to “biblically” cost someone his life.
As such, for those looking to engage in trading silver via a forex brokerage platform, it is good to note that the prices of precious metals tend to move in tandem—again, most of the time, but not all the time.
In summary, the global financial markets continue to expand covering several asset types, which now include currencies, indices, commodities, stocks, and cryptocurrencies among others. While they are all accessible from a single platform, trading strategies for each asset type differ
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