What’s rare is precious, and all that is precious has a huge demand in the commercial world. They help make people, the traders who trade them rich and so is the best source of earnings and investment. Commodities like gold, silver, platinum, etc. have been traded in the markets from a long time.
The Spot Market
Commodities are traded instantly over the spot market. Spot trades are carried out by spot prices and unlike the futures market, all trades undertaken are settled instantly in the spot market. Spot markets can be mainly of three types:
- The organized markets
- Over-the-counter (OTC) markets
Commodities and their price variation
All the commodities traded, be it precious metals like gold or silver, energy sources like oil or natural gas; all come from and exist in the real world and so their prices are also affected by several factors/events that persist in the real world. For example, if there are surplus oil reservoirs then, the price of oil drops accordingly and vice versa.
Major factors affecting the prices of commodities traded over the spot market include:
- Currency strength
- Market volatility
Spot Price for Precious Metals
The current price or the market value for the commodity or the asset to be traded is called spot price. Different commodities have different spot prices which are affected by the various factors mentioned above (please refer “Commodities and their price variation”). Spot price specifies the price at which a particular commodity can be bought or sold at a specific time and at the specified place.
Though prices are available in many other currencies, as per the accepted market norm, all prices for precious metals are specified in US Dollars per troy ounce.
Spot Metal Trading
More than 75% of the elements in the periodic table are metals. Of which, some are abundantly found on the earth’s crust (base metals) while some are extremely rare (precious metals).
Major precious metals traded
Gold is mainly traded in bars. Gold bars come in various sizes to meet the investor’s requirements. One of the largest markets for trading gold is organized at London where the standard size for a gold bar is 400 troy ounces. Other popular gold bar sizes frequently used by traders all around the world include 100 troy ounces, 1 kilogram, and 5 tael. Price fluctuations mostly occur at $0.10 per troy ounce.
Silver is also mainly traded in bars. The standard size for the silver bars in the London market is 1,000 troy ounces. Other popular silver bar size include 5,000 troy ounces. Price fluctuations of silver occur at $0.005 troy ounce.
Gold and silver coins
Other than the standard gold and silver bars, investors can directly invest in these two widely traded commodities by buying their coins which are widely accepted and supported by private markets and agencies.
Platinum is widely used in the automobile industry and in the making of jewelry. It also has several other industrial uses. Price fluctuations for platinum are at the rate of $0.10 per troy ounce.
Another member of the PGMs, palladium is extremely rare and of very high value. The metal’s lustrous appearance has made it ideal for making jewelry but, is not widely used as platinum due its lower density. Palladium’s price fluctuations stand at about $0.05 per troy ounce.
A summary on the major precious metal commodities and their contract sizes are as follows:
|Gold (XAU)||100 troy ounces, 1 kilogram, and
|Silver (XAG)||5,000 troy ounces|
|Platinum (XPT)||50 troy ounces|
|Palladium (XPD)||100 troy ounces|
A pictorial representation of the Gold prices on the MT4 platform:
The precious spot metals price chart:
Major base metals traded
Unlike gold, silver, platinum and palladium, the base metals do not fall into the category of the most traded spot metals but, still are the essential commodities in the commercial market as they are used extensively in the construction and manufacturing industries which now form the backbone for every country’s development.
The major base metal commodities and their contract sizes are as follows:
|Aluminum||25 metric tons|
|Iron Ore||500 dry metric tons|
|Lead||25 metric tons|
|Molybdenum||6 metric tons|
|Nickel||6 metric tons|
|Steel||20 short tons|
|Tin||5 metric tons|
|Zinc||25 metric tons|
The future of spot metal trading – is it safe?
An advantage with Spot metals is that they offer inflationary protection as in:
- They carry no credit risk
- Cannot be inflated i.e. they cannot be printed to get more of them
- Have intrinsic value
- They also offer true insurance against financial or political upheavals.
Like Forex trading or spot Forex, spot metals too need to be learnt and understood carefully before choosing it as your investment option. One must spend time and understand thoroughly the risks associated with spot metal trading and also set clear goals to achieve. Both of which, if left unchecked can lead to huge loss.