Metals are a significant part of the global economy and have been for a long time. There are many reasons why metal prices are so volatile and what drives them. However, there are innumerable reasons why you must trade metals. Investing in metals can be highly profitable if you know what you’re doing. Metals are used in the manufacturing of a wide range of goods, including cars, electronics, appliances and other industrial goods. Metals are also essential for the production of machines in the energy industry, like wind turbines. Similarly, solar panels are made from steel or aluminium.
Economic and geopolitical factors
In addition to being a hedge against inflation and deflation, precious metals are also considered a hedge against economic and geopolitical factors. The market gets driven by supply and demand, but geopolitical factors can also impact the price of metals. Here is how:
- Geopolitical events can have an impact on economic stability (e.g., the European debt crisis)
- Economic instability can lead to political instability (e.g., Brexit).
- Economic factors: The demand for metals can vary depending on the economy. For example, if there is an economic downturn or concerns about inflation, people may look towards other investments rather than precious metal stocks.
Volatility and quality of metal prices
It is important to note that metals are volatile. If you check the price of gold for the past few years, you will realise how prices fluctuate over time. It is one of the reasons why many investors prefer trading these products instead of owning them, as they can easily hedge their risks by selling their positions in case prices drop.
It is also true when it comes to trading futures contracts on precious metals such as gold, silver and platinum bullion; however, other factors also affect metal prices.
High-return investment opportunities
Metals are a good investment because they tend to have a high return on investment, which means that you can make money from your investment even if the price of the metal decreases. When you trade metals, you also get protected against inflation, currency fluctuations, and economic uncertainty.
Metals have industrial and economic uses
As already mentioned, metals are used in a variety of industries. Moreover, they are used in almost all industrial sectors, such as energy, construction, automotive and aerospace. Metals also have different applications depending on the type of metal. Some of their applications include:
- Energy sector: Metals are used as conductors and insulators in power transmission lines. They also make up electric motors, generators, transformers and electric cables that carry electrical power to homes and offices and other utilities like water treatment plants or sewage treatment plants.
- Construction industry: Steel reinforcement bars or rebars get made from iron rods or wires coated with concrete mixtures that reinforce the exterior walls of buildings during construction (I-beams). The strength of these reinforced structures is determined by the amount and size of steel rebar used throughout each project. So having more than adequate supplies is crucial for proper reinforcement!
Once you decide to trade metals, your trading journey gets very interesting. You will make an exceptional investment and diversify your portfolio simultaneously.