
It can’t be this easy, can it?
There is a large community of traders who focus purely on trading precious metals, with the weapons of choice being gold and silver. These precious metals are named as such because they are rare, beautiful, and have been desired by humans for the entirety of recorded history.
In recent times, they have rarely been desired more than the present.
With governments around the world borrowing and spending furiously and central banks buying up bonds (which forces bond yields down), interest rates have dropped across the board. This has a two-pronged effect on precious metals:
(1) Low interest rates have lowered the opportunity cost of holding precious metals compared to holding deposits and bonds. Precious metals do not have an inherent yield and if you can get a strong yield off holding deposits and bonds this can be an issue. However, with yields approaching zero on deposits and bonds, this is not an issue.
(2) Government borrowing and the purchasing of bonds by central banks has allowed more money to flow to precious metals than otherwise would be available.
On top of this, historic levels on economic uncertainty is causing many investors to look safe havens and precious metals have always been seen as one of, if not the safest of havens.
Precious metals have been great investments over the past few years and particularly the past few months. But if you are planning to trade them, how do you know which metal to choose? And what bullish or bearish indications should you look for?
One of the most reliable indicators for trading the precious gold and silver metals has been the price ratio between the two. Historically appreciation in gold prices has preceeded rising silver prices before silver prices eventually catch up. But catch up they do, with the silver-to-gold price ratio frequently returning to the 80x multiple, where gold is eighty times the price of silver.
As a result, a frequently profitable trade on precious metals is simply to buy silver or silver derivatives (such as mini warrants) when the ratio of silver-to-gold becomes too high.
Recently the ratio of gold-to-silver extended to multi-year highs, and this presented a fantastic opportunity to buy silver. Silver prices subsequently rocketed, with the price of silver rising by more than 15 percent across just two days last week and rising by almost 40 percent across 30 days.
Had you decided to simply purchase silver as the ratio reached its historic levels in March, you would be up more than 90 percent in US dollar terms today. Not bad for a precious metals investment across just four months.
The simple way to trade precious metals
It can be hard trading precious metals, especially when there is a shortage of the physical metals available to most potential buyers. Anecdotally, those going to gold and silver brokers have had a hard time getting their hands on the metals and those who have been able to have generally paid a premium to market price.
After purchasing physical metals, you then must store them and when you are ready to sell, there comes another round of potential headaches.
A simpler way of trading precious metals is to use ASX-listed mini warrants or exchange-traded funds (ETFs). These will give you exposure to the underlying spot or futures markets in the metals, allowing you to get market-accurate pricing, as well as leverage to make your dollars go further. Additionally, you will not need to worry about storing the physical metal.
If you are interested in learning more about trading in precious metals, please do not hesitate to contact an Emerald Equities Advisor on 03 8080 5777 or learn more at www.emeraldequities.com.au