How to Trade Gold & Silver: Precious Metals Futures Explained

Date Modified: 09/01/2024

Gold and silver are precious metals that are valued by many for their safe haven appeal as traders and investors tend to seek refuge from inflation through trading them. This is because historical price patterns have shown that whereas inflation and recessionary fears may cause volatility across various market sectors, some assets like Gold and Silver are considered to be less volatile in such cases as they tend to preserve or ascend in their value. So what are precious metals exactly, how do you trade them, what shifts their prices and what are their benefits?

An illustration of gold and silver bars

What Are Precious Metals and How to Trade Them?

Famous for being used in jewelry-making, as the name might entail, precious metals are elements that are considered to be scarce, valuable, and more expensive than other metals. Moreover, besides being used for jewelry, precious metals are also used in the creation of electronics, energy products, and automobiles. In addition, when talking about precious metals, it is important to note that the most popular of them are gold, silver, palladium, and platinum.

Accordingly, due to their appeal, many traders and investors may want to trade these metals and potentially profit from them. This can be done in multiple ways, one of which is owning the precious metals by buying them either from a bank, intermediary, or exchange like the Shanghai Gold Exchange. Another way to trade precious metals is through buying or selling gold and silver coins or bars. But perhaps one of the most popular ways to trade gold and silver is through Gold and Silver Futures.

What Are Gold Futures or Silver Futures?

Futures contracts offer traders the opportunity to access a wide range of financial markets, including the metals commodities market, and trade on their rising or falling prices. Gold and Silver Futures are derivative contracts that obligate the trader to buy or sell gold or silver at a predetermined price and quantity in the future. You can read more about how Futures contracts work and what Futures are in our article- “What Are Futures and How Do You Trade Them?” In addition, you can find out more about how you can read and understand a contract better in our “Terminology and Symbols in Futures Trading.”

What Are Some Advantages of Trading Gold and Silver Futures?

Investors and traders may want to trade Gold and Silver Futures due to the fact that they come with multiple possible advantages that include the following:

  • Leverage: for traders seeking to potentially magnify their gains using a relatively smaller margin Futures trading may be a good fit. Trading with leverage also carries a fair amount of risk.
  • Risk hedging: Futures allow traders and large corporations to hedge against the risk of metal commodities price swings.
  • Flexibility: Futures trading allows access to gold and silver prices almost 24 hours a day, 6 days a week which increases trading opportunities and exposure to price changes, unlike traditional gold trading. However, please note that each trading day, there’s a one-hour break in the afternoon.

Nonetheless, whereas Gold and Silver Futures certainly have their perks, they can also be accompanied by greater losses due to leverage in case the prices of the underlying asset go against the initial contracts’ prices.

The Benefits of Trading Precious Metals Over Stocks

  • Whereas precious metals can be a safe haven from inflation as they can appreciate or preserve their value, stocks tend to be more volatile in times of economic downturn.
  • Gold and silver may have an intrinsic value which means that they may depreciate but will usually hold most of their value. However, please keep in mind that past performance is no indicator of future results.
  • Some consider Gold and silver trading to be more liquid than stock trading though both types of trading can be volatile and their liquidity can ebb and flow.
  • Unlike stocks, metals are tangible assets that can be seen and measured which may be attractive to traders who prefer to invest in actual resources.

What Moves Gold Prices?

While generally gold is known for its appeal, its prices can shift due to supply and demand changes. According to the supply and demand law, commodity prices are likely to rise when the overall supply and inventory fall and vice versa.

In addition, like most market sectors, metal commodity prices tend to shift due to changes in market sentiment and interest rates changes. This is because when the Federal Reserve hikes interest rates, the U.S. dollar tends to appreciate in value, which, in turn, causes gold to decline due to the fact that gold futures are priced in U.S. dollars.

Moreover, given the fact that gold is mined from the earth, it might not come as a surprise to learn that geographical and weather changes can affect bullion prices.

What Moves the Price of Silver?

Like gold, silver prices are also subject to supply and demand changes. Also, similar to gold, inflation and the purchasing power of the U.S. dollar can affect the prices of silver whereby a stronger dollar weakens silver. This also applies to interest rates as higher interest rates can lead to lower silver prices and vice versa.

Furthermore, historical price patterns indicate that silver and gold prices tend to rise and fall in tandem since as gold rises, silver rises too. Nonetheless, it is important to note that the markets are volatile and that past performance does not necessarily reflect future results. Other factors that may affect silver prices are economic trends and market sentiment which can also affect gold as well.

Gold ETFs vs. Gold Futures

Another way to trade gold is through precious metals ETFs, which are more similar to stocks in their function in that they are commodity funds that invest in gold-backed assets. This differs from Gold Futures, which are contracts that invest directly in gold and can either be cash-settled or can lead to the physical delivery of gold. It is also worth noting that whereas Futures are traded via Futures exchanges and are contracts that are settled or rolled over when they expire, ETFs are similar to stocks as they can be traded throughout their exchange trading hours.

What Are the Official Trading Times For Precious Metals?

Precious metals trading is conducted from Sunday at 6:00 p.m. EST until close on Friday at 5:00 p.m. EST with an additional break between 5:00 p.m. till 6 p.m. from Monday to Thursday.

Overall, gold trading and silver trading can be achieved in various ways. If Gold and Silver Futures and online gold and silver trading appeal to you, then you can trade them through Plus500’s Futures trading platform.