Precious Metals are rare, naturally occurring metallic elements with high economic value. They are unusual in that they are both industrial elements and investments. Manufacturers use these metals to make electronic components, jewelry, dental equipment and catalytic converters among other things. Investors, on the other hand, collect coins and bars made out of precious metals.
This second use – as investments – makes precious metals the objects of intense speculation in commodity markets. Precious metals traders see these commodities as a form of money that holds its value better than printed paper money. Skeptics, however, argue that precious metals are simply rocks with little utility beyond their limited industrial uses. Ironically, the high premium placed on precious metals by traders makes them too expensive and impractical for most industrial applications.
Trading a contract for difference (CFD) on gold is similar to trading currencies. You are buying or selling a gold CFD in response to price movements in the market. Trading gold allows you to enter and exit trades without ever physically owning this precious metal. The concept is very similar to forex trading. Gold is traded against the US dollar and the symbol is XAUUSD. If you decide to add precious metals to your portfolio you can trade it as you would a currency pair. If you believe the gold price will fall, you can sell the “pair”, and when you think the gold price will rise, you can buy it.
For example, XAUUSD shows us that 1 ounce of Gold = $1895.24 USD.
When you’re ready to trade you will choose to go long or short. In the example above, going long means that you think that the value of Gold will rise against the US Dollar. Going short means you think it will fall.
The limited supply of precious metals and characteristics including resistance to corrosion make them highly valuable. The soft texture and shiny appearance of precious metals allows for a range of applications including jewellery, industrial uses and dentistry. Gold, silver, platinum and palladium are the most traded precious metals.
Aside from being rare and valuable, there are numerous benefits associated with trading precious metals. Historically, during economic slumps and periods of market uncertainty the value of precious metals has risen. Consequently, metals are considered a safe-haven investment and are often used as part of a risk management strategy. Metals are used as a hedging tool against inflation and fluctuations in currency prices. It is very common for traders and investors to diversify their portfolio by allocating a percentage of it to precious metals.
Investing or trading precious metals does not have to mean holding a gold bar or coin. With metal CFDs you no longer need to own and possess the actual precious metal. Through Contracts For Difference (CFDs) you can gain exposure to precious metal prices that are comparable to the largest metals exchanges in the world. The benefits of CFDs include leveraged trading and the ability to open both long positions and short positions. Metal CFDs eliminate the risk of theft and have no storage costs as you do not own the underlying asset. Exchange-traded funds (ETFs) are another way to invest in precious metals and commodities in general.
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