Trading Gold and Silver

Trading gold and silver has become increasingly popular over recent years. More and more Forex brokers are offering trading in gold and silver, as well as some other precious metals such as platinum and palladium, but gold and silver take up most of the speculative interest in this category. In addition to trading precious metals virtually, there are a lot of offers available to buy and sell gold and silver bullion and take physical ownership in the shape of coins, ingots and other collectables; but this article will focus on the online trading of gold and silver.

Precious metals such as gold and silver have traditionally been currencies themselves, falling naturally in the “Forex” category being fully replaced by fiat currency over recent decades. Unfortunately, a lot of people lose their minds a little over precious metals, especially gold, forgetting that it is just another commodity to trade. There are two main reasons why people go crazy over gold: firstly, its unique position in most human cultures as the epitome of a store of value (i.e., it is considered a “safe-haven” asset); secondly, monetarists believe that due to the global fiat currency system, one day all currencies will collapse and precious metals will become enormously valuable, which is highly questionable.

Gold and Silver Price Behavior

To trade gold and silver successfully, it is important to put thoughts of the commodity itself out of your mind and just focus on the behavior of its price. Gold and silver prices are traditionally quoted in U.S. Dollars, but some brokers will price it in Euros and other currencies. If you do trade these metals against currencies other than the U.S. Dollar, do keep in mind that most of the world watches it against the U.S. Dollar, so keep an eye on what is going on there.

One of the main reasons why trading gold and silver can be more attractive than trading Forex is that these precious metals usually move in bigger increments than Forex currency pairs. The major Forex pairs typically fluctuate in value by much less and have a greater tendency to revert to mean values. For example, at the time of this writing, over the past 1,000 days the four major currency pairs move by an average of 1.00% per day, while Gold in U.S. Dollars has an average of 1.40%, while Silver is even more explosive, averaging 2.78% per day.

It’s important to consider that commodities generally move by considerably more than currencies, but minimum trading sizes in commodities other than gold and silver are typically much larger which can cause position sizing problems for retail traders with smaller sized accounts. When it comes to long-term price movements, gold and silver beat Forex hands down: while 30% moves within a year do happen from time to time in Forex, and rarely even by a little more than that, major currencies never move like Gold and Silver do, recent years have seen a 70% annual increase in the price of gold and a near tripling (200%!) in the price of silver, each denominated in U.S. Dollars. This means that even though you might need wider stops than in Forex trading, there is often much more potential profit on the table. However, leverage offered is typically considerably lower compared to Forex currency pairs, and overnight financing charges are typically higher.

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