PRECIOUS METALS WE SHOULD INVEST IN
Precious metals are known to be rare metallic chemical elements and, throughout history, they have been used for different purposes. These elements are considered to be of high economic value and nowadays the most common metals in the monetary market are gold and silver. But when we refer to precious metals, then ruthenium, rhodium, palladium, osmium, iridium and platinum must also be recalled in this area.
Gold is the most popular metal which is used in the jewelry industry, but it is also known for its important role in medicine, electronics, dentistry, and food industry. In the present, this metal is seen more as a real investment, because the current money system is going through a period of stress and more and more people believe that investing in precious metals will be a safe method for the future.
If you decided to invest in gold, you should adopt the best strategy and try to find the most profitable way, based on your needs. You can resort to the physical gold method of investment, which includes coins, bars, and jewelry, or choose the gold exchange-traded funds and the gold stocks.
Silver also has a special place in both coinage and jewelry systems, and it is well appreciated for its high electrical conductivity. This metal has an important role in the manufacturing of musical instruments and dental fillings, or in the mechanical ventilation. Like gold, silver was used as a currency, but compared with gold, the price of silver is rather uncertain.
There are numerous ways in which you may invest in silver, and if you do not know what choice to make, then you should ask for an expert’s opinion. If you prefer a traditional method of investment, you could choose silver bullion bars, but if you would like to search for a new form of trading, then invest in silver coins. Other methods could be those of exchange-traded funds, bank accounts, shares in mining companies and more.
Due to the present effects of the financial crisis, investing in precious metals could be the best choice. When most people think of investing in precious metals, they usually choose the bullion method of investment, but this strategy varies depending on each requirement.
Even if platinum and palladium are also used for different purposes, gold and silver remain the reliable factors of investment itself. For those who are already used to invest in these metals, they are a means to increase their portfolio and a trusted source for the future.
However, even if the demand for precious metals keeps on rising, it doesn’t necessarily mean there will be an immediate spike in price. It depends a lot on their constantly changing supply levels, resulting from active mining as well as the aggressive selling by large stake holders.
You have to do quite a bit of your own research before making your purchases. You also have to provide a storage space that is safe and secure if you elect to park your money on coins or bullion. Investing on precious metals requires maintaining a long-term perspective, meaning you have to be prepared to weather short term market volatility.
Investing in Gold
There are many ways to invest in gold. You can invest in physical gold by buying gold coins, jewelry or other physical forms of the metal. You may invest in gold by buying shares of stock in gold mining companies. There are also Exchange Traded Funds that track spot gold prices (Gold ETFs) which you can include in your investment portfolio.
The most popular and the most convenient way of investing in gold is by buying or selling gold futures through commodity exchanges such as the New York Mercantile Exchange or COMEX. You can either trade directly with the exchange via their regular brokers, or trade online via their online brokers using a virtual trading platform.
For retail investors, it would be wise to do online trading instead of opening a direct trading account with the exchange. It requires less capital and the trading hours are longer.
To start trading gold futures, all you need to do is open an online account with a member broker of the exchange. In the case of gold, your options can be any online broker accredited by CME Globex, India’s NCDEX, Dubai’s DGCX, Multi Commodity Exchange, or Tokyo Commodity Exchange.
Once an account holder, you will be provided with a virtual trading platform which is linked to the global gold market in real time. Using this platform, you’d be able to buy gold futures or trade on spot prices of gold in real time with minimal margin requirements.
Most online brokers use the Metatrader 4 as their virtual trading platform. This is one of the most popular, user-friendly trading platforms around. It allows you to trade any of the many securities serviced by your broker-provider, using only just one account. This trading platform comes with a powerful array of technical analysis tools and real time financial news feed to help you make trading decisions with less difficulty.
Gold futures (including current month or spot gold) are traded by lots. Each lot is equivalent to 100 ounces of gold. Some brokers offer micro and e-mini accounts where lot sizes are smaller (10 ounces and 1 ounce lots) compared to regular accounts where 1 lot is equivalent to 100 ounces of gold.
Nymex gold has a ticker symbol of GC while its electronic trading counterpart under CME Globex is EGC. CME Globex E-Micro Gold future has a ticker symbol of MGC.
Trading is highly leveraged with margins as low as 1% of the notional value of the contracts. Maximum leverage for gold micro account can be as high as 1:1000. However, current regulations in the U.S. limited the leverage for margin trading to no more than 1:50.
Minimum contract size for micro accounts is 10 ounces with minimum $0.10 per ounce price increments. Margin call is set at 40% of the notional value. Automatic cut point is at 10%NV. (Notional value = number of ounces x current price / 100). For regular accounts, initial margin requirements start at $2000 for every position taken.
Current Gold Outlook
Gold prices have been plummeting for the last 2 ½ years, losing 27% of its value and dropping by more than 38% from its September, 2011 high of $1,923.70 per ounce. The main contributing factor to this horrendous drop in prices is the improving U.S. and global economies which triggered the capital flight from safe haven to more meaningful investments – a logical move expected to happen when the economic outlook is all pink and roses. However, the question is after 2 ½ years of stormy down trend, has it reached bottom and ready to mount another rally?
By all indications, gold has lost its luster as a safe haven for investment funds, and investors are not likely to get on board any time soon. All things considered, what will come into play is the demand-supply equation. With gold production dwindling consistently and as the demand for gold remains constant, it won’t be long before the short supply of gold gets back its firm hold of the market.
The fact remains that the total gold supply dropped by 3% last year and the supply crunch is predicted to continue for another year or so, which may trigger another gold uptrend in the near term. However, bottom picking is tricky and should be done with extreme care and only after an exhaustive analysis of current price movements.
Silver is like gold in many respects, particularly as an investment vehicle. The price movement of silver is more volatile, though since market liquidity is 18 times lower than gold. This means even single volume transactions can have a profound impact on silver prices. Worst, large traders or investors have the potential of influencing the movement of silver prices. Under normal market conditions, silver tracks gold prices with a ratio of 1:50 gold/silver.
The physical demand for silver is estimated at a mere $15.2 billion per year. However, the industrial uses of silver are on the rise from the silver-based biocides found in almost all industrial, consumer, and commercial products to the latest technology using Nano-silver particles with applications that include bone cement, wound dressings, surgical masks, surgical instruments, and lately as silver particles on the surface of home appliances.
The regular silver futures have the ticker symbol of SI with a contract size of 5,000 ounces per lot and requires an initial margin deposit of $11,000 with a maintenance margin requirement of $10,000.
The micro silver future, on the other hand, has a ticker symbol of SIL and has a contract size of only 1,000 ounces per lot. The initial margin requirement is $2,200 per lot with a maintenance margin requirement of $2,000.
Analysts believe there will be little investment appetite for silver especially after shedding 35% of its value from mid-December, 2013 prices despite the growing demand for it from the industrial sector. It will continue to track the price of Gold which is currently also in the doldrums.
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