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foreign
ERS welcome back to another in-depth
with Chris episode in today's discussion
we're going to dive into something that
many of us already trade and those of us
looking to trade might be interested in
investigating further something that is
so powerful that without it it can
multiple Industries and
economies around the world and just
paying attention to it can be a very
good gauge as to how healthy an economy
is we're talking about Metals both base
Metals precious metals ferrous and
non-ferrous we're going to get into all
of that and everything that you need to
know about trading Metals let's dive on
into it good luck let's have some fun
and learn about metals
the utmost importance of metals for the
economy and the role in our everyday
lives really can't be overstated enough
as Commodities with a broad application
Metals enjoy constant high demand and as
traders that is music to our ears let us
first talk about the different types of
metals on the broad side of things on
the left we have ferrous metals and on
the right we have non-ferrous Metals
non-ferrous metals are going to then be
broken down into two further categories
where we have base and precious metals
base metals are industrial Commodities
primarily used for manufacturing
construction and assembly applications
they tend to oxidize tarnish or even
corrode over time if exposed to air and
moisture
some popular base Metals include copper
iron aluminum nickel lead zinc and this
list really kind of can go on from here
but these are the main ones these metals
are more abundant in nature and they are
rarely used for jewelry and aren't a
good way to store value then as their
name suggests on the right hand side the
precious metals are the more expensive
and rare cousins of Base metals they are
high-end Commodities used for jewelry
fine dinnerware decorations or simply as
a storage of value they don't corrode
oxidize or tarnish meaning they were
made in perfect condition for centuries
precious metals are also scarser which
makes them more valuable intrinsically
the more popular precious metals include
Gold Silver and platinum but once again
this list is still larger than this and
we have things on it like Palladium
rhodium and iridium and this list kind
of keeps going on and on but really most
people are referring to the gold silver
and platinum categories when they're
talking about precious metal levels so
to summarize the difference between the
base and the precious metals let's just
say that base metals are the backbone of
the economy due to their critical
importance for the industry while
precious metals are valued higher and
serve mainly as a storage of wealth then
back on the left hand side here with
ferrous metals on the other hand these
are going to be Iron containing metals
and those of you that are you know
eagle-eyed hopefully you caught the no
iron on the bottom side of the
non-ferrous Metals category but just a
little humor to keep us going but with
ferrous metals they always contain iron
so this is going to be things like cast
iron wrought iron alloy steel and carbon
steel once again the list is still
larger than this but these are the main
ones and these are going to be things
that are also valued but not to the same
degree as precious metals the ferrous
metals category is very comparable to
the base Metals category in the fact
that they are fundamental for many
Industries and are used due to their
tensile strength and durability ability
they also have magnetic properties
there are various ways to trade Metals
including Futures contracts my personal
favorite ETFs or cfds there is also an
indirect way to access these markets by
owning stocks of say mining companies
producing these metals or OTC products
like mutual funds based on a particular
metal however the most direct way to
trade these Metals is going to be the
Futures Market on the left we have the
Chicago Mercantile Exchange where we can
see that 22 million ounces of gold are
traded on a daily basis then we have 350
million ounces of silver traded on a
daily basis where our number two
runner-up is going to be the Shanghai
Gold Exchange where they are trading a
very respectable 6 million ounces of
gold a day as well as a 140 million
ounces of silver so basically what this
tells us is the CME is still the top dog
when it comes to our precious metals
trading this is something that is going
to be up to you to decide which exchange
you're interested perhaps you want to
check out both of them but that's really
not ideal in the long run either or now
you know the details most exchanges
offer full mini and micro Futures
contracts the nice thing about those
micro Futures contracts is they're very
appealing to those of us that are just
getting started in trading at the
beginning and aren't looking to risk a
whole lot of capital so I strongly urge
if you're looking to go down the Futures
path that you check out an exchange that
is going to offer you micro contracts
now bear in mind that base metals are
often traded in bulk by larger brokerage
houses institutional trading firms or
industrial Giants this means the markets
can often be a bit more volatile than
the precious metals category so most
people are going to be interested in
trading the precious metals however if
you are interested in trading exotic
base Metals you may want to opt for the
London Metal Exchange otherwise known as
the lme I don't have it listed here as
most people are going to be interested
in trading precious metals everybody
loves the Allure of trading all of those
gold silver and and all of the
excessively luxury type of items in the
markets
precious metals are a common tool for
portfolio hedging and diversification
since they tend to perform well in
turbulent market conditions also since
they are more resilient and durable
their value will likely remain the same
or even increase over time precious
metals give the biggest number of
options for trading and investing aside
from ETFs Futures and options contracts
stocks and some OTC instruments
investors can also buy gold and silver
in their physical form this includes
buying coins Jewelry accessories
bullions bars Collectibles and other
items made from gold silver Platinum
Palladium Etc the list goes on and on
however it is worth noting that such
Investments are also accompanied by
delivery storage insurance and other
costs if you're looking to buy something
in its physical form but according to
estimation over 19 million ounces of
gold and 170 million ounces of silver on
average are transferred every day only
on just the London Market alone now
let's talk talk about the Price Movers
and as with most things in the trading
and commodities world the price of base
and precious metals is largely
determined by their supply and demand so
the main impactor that we'll start off
talking about will be the production and
Export factors if the mining technology
improves this will lead to a faster
extraction of larger quantities of a
specific metal and this would result in
a bigger supply thus causing a
short-term or medium-term price drop on
the other hand if mine workers in top
metal producing countries go on strike
it will slow exports down and lead to a
Global Supply crunch the result would be
higher prices for this particular metal
the global lockdowns after the covid-19
pandemic for example which destabilize
the global Supply chains led to a surge
in prices for lithium a key component
for electric vehicle batteries the
disrupted exports from Australia and
Latin America which is the biggest
lithium producers in the world through
the Eva industry into chaos and this led
to a massive Market reversal the same
thing is now happening with the prices
of platinum as well as Palladium due to
the restrictions that are currently
going on in Russia with the Ukraine
Russian conflict the Russia is often
considered the world's leading Palladium
mining country and the second biggest
Platinum producer in the world the next
thing we'll talk about is the economic
uncertainty recession periods which once
again we unfortunately may be
experiencing depending on where we live
at this point in time much of the world
is we can experience shrinks and
industrial production due to recession
periods and this can lead to lower
demand for base metals and as a result
their prices can drop at the same time
since many investors consider gold and
precious metals Safe Haven assets or a
storage of value the demand always
increases when the economy is shaky and
that is why gold prices usually Trend
upwards when the market is going down we
have an inverse correlation later and
that's important to understand the next
thing we'll cover is the geopolitical
conflicts similar to economic
uncertainty geopolitical stress can also
lead to increasing prices of metals in
terms of precious metals the reason is
once again the idea of having a shelter
for your wealth in the context of Base
Metals prices might rise due to
potential risk or actual impact on
Supply chains finally we have that
strength well not finally almost finally
we have strength of the USD and like
most Commodities metals are also dollar
denominated this makes them dependent on
the pricing dynamics of the U.S currency
usually when the value of the USD Falls
the price of gold goes up and vice versa
that inverse correlational aspect we
just mentioned there is also the purely
psychological notion that the price of
gold is often sensitive to the overall
perceived value of Fiat or paper
currencies and then finally for real
we've got monetary policy so monetary
policy there is a theory that monetary
policies like quantitative easing and
interest rate Dynamics affect the price
of precious metals the reason for
interest rates is related to fixed
income investors if interest rate
changes take a toll on their yields they
might consider precious metals a viable
alternative however the stronger link
between interest rate changes and the
price of metals is the effect on the USD
if interest rate announcements push the
dollar higher the price of precious
metals will likely drop when it comes to
quantitative easing the reasoning is
that the money printing policy can
depreciate a currency thus increasing
inflation and precious metals perform
well during periods of high inflation
for those interested in entering the
metal markets it's essential to be
familiar with the market specifics and
the parties that are participating in
each Metal's trading investment so let's
take silver for example as it is a
precious metal with broad Industrial and
Commercial applications the combination
of these factors make the metal a point
of interest to various parties which
include things like mining companies we
have Metallurgy and refineries we have
electronic automobile and energy sectors
all included we have jewelry industry
we've got institutional investors and we
have hey us the prop trading firm
Traders then we have the retail Traders
the traders that are just simply trading
out of their house with their own money
this is just a tiny part of the market
and we're only talking about silver
itself here but these are things to be
aware of regardless of what metal you're
interested in trading it would be
advantageous to become intricately
familiar with the largest parties
involved in whatever particular Market
you're interested in pursuing
many Market experts consider base metal
prices a great Benchmark for the state
of the global economy their prices are
closely linked to the outlook for
overhaul economic health since they tend
to go up when the economy is in good
shape and drop in times of recession due
to their tie to Industrial use an
interesting fact economists refer to
Copper as Dr Copper at times joking that
it is a metal with a PhD in economics
the basis for such jokes like this is
that you can often predict turning
points in the global economy only by
looking at Copper prices copper is so
reflective of the economy since the U is
used in just so many industries from
heavy industrial Machinery to advance
electronics and as a result its demand
can be indicative of expansion or
contraction in economic output however
looking at the direction of metal prices
alone won't always give you a fair
representation of the state of the
global economy it is also essential to
consider the rate of the price drop or
increases small changes can be natural
and a result of a particular industry or
country specific event however if the
drops or hikes are substantial the
signal for a shrinking or growing
economy is much much stronger so in
short metals can be a phenomenal way to
hedge a portfolio due to their ability
to inversely correlate what the world
economies are doing at times there's
something that have been used since the
beginning of time a representation of
power wealth and something used to
barter and trade for other goods and
services in the world today there's so
many metals more Metals than ever really
that we are now identifying or using we
have crazy Metals out there like osmium
which is the rarest metal in the world
and then we have other metals like
rhodium which are trading in 2021 at a
high of almost 30 thousand dollars an
ounce making it the most valuable metal
in the world but don't jump on that
train just yet because the market isn't
nearly as liquid as say gold or silver
over but until next time good luck out
there happy trading medals I'll see you
all very soon
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