In-Depth look at metal markets

1. Overview: Developments in Metal Markets
2. Factors Influencing Metal Prices
3. Gold
4. Ways to Trade and Invest in Gold

In this lesson, we will examine the factors affecting metal prices, take a closer look at gold, and explore how to trade these raw materials.

Overview: Developments in metal markets

Metals form a core component of materials. Some are essential for industrial sectors, such as manufacturing and construction, while others are classified as precious metals, mainly used in jewelry and investment. Silver, for example, has both industrial and investment applications.

Metal markets are divided into two main categories:

Precious metals (e.g., gold, silver, platinum)

Industrial metals (e.g., copper, nickel, aluminum)

Metal prices reflect various economic factors. For instance, copper, widely used in electronics, wiring, and motors, is often viewed as an economic health indicator—high demand for copper usually signals growth in construction and manufacturing.

Gold, on the other hand, is valued not only for jewelry but also as a "safe-haven" asset for investors during economic uncertainty, which often drives its price upward.

Metals available for trading

The following metals are commonly traded on commodity markets:

• Gold
• Silver
• Platinum
• Copper
• Nickel
• Aluminum
• Palladium

Additionally, there are base metals such as zinc and lead, as well as less common byproduct metals. Trading volumes for these metals are lower, although some exchanges now offer contracts for cobalt and molybdenum.

While certain metals, such as lithium, play a crucial role in industries like battery production, they are not yet widely traded on financial markets.

Factors influencing metal prices

Similar to other financial markets, metal prices are primarily driven by supply and demand—or expectations of their future trends.

A vast research, analysis, and advisory sector has developed around the metal market, providing insights on nearly every individual metal. Many online platforms track metal price movements, but these can be highly volatile. Price fluctuations are often influenced by factors such as the discovery of new deposits or technological advancements that increase demand for a specific metal.

To improve trading decisions in the metals market, it is crucial to understand mining and production models for specific assets, as well as the changing demand in industrial sectors.

Several key factors influence supply and demand, including:

Supply Factors:

• Availability of reserves
• Mining and production costs
• Expenses for transportation and storage
• Government policies (taxes, regulations, subsidies)
• Monetary policy
• Workforce disruptions (e.g., mining strikes)
• Natural disasters

Demand Factors:

• Level of infrastructure development
• Activity in the construction and industrial sectors
• Availability of substitute or lower-cost metals
• Market volatility

Gold

Gold is highly valued not only for its distinctive luster and malleability in jewelry but also for its unique technical and electrical properties.

Unlike other metals, gold is often perceived as the ultimate "safe-haven" asset. During periods of market uncertainty and economic downturns, it typically retains its value, attracting investors seeking stability.

This characteristic makes gold an effective portfolio diversification tool. It generally has an inverse relationship with the US dollar and often moves independently of stock and bond prices. Additionally, gold tends to positively correlate with safe-haven currencies, such as the Japanese yen and Swiss franc.

Since gold supplies are limited, many investors believe it will hold its value over the long term under any circumstances. Increased demand can significantly impact its price, as seen in 2020, when economic uncertainty caused by the pandemic led to a surge in interest in gold as a safe investment.

Ways to trade and invest in gold

Many speculators focus on trading gold’s spot price, which is derived from the most actively traded futures contracts on the COMEX (Commodities Exchange) in New York. Since these contracts are actively traded daily on a centralized market, they provide the most accurate and up-to-date gold prices.