Advantages And Disadvantages Of Trading Valuable Metal - Gold And Silver

Either gold and silver is often traded online without having the physical metal. Is trading over these 2 precious metals could be a profitable opportunity? Is there a drawbacks? Find out the answers right here.

You may have heard about online trading of precious metals such as gold and silver. The role played by these two precious metals especially gold in the financial market cannot be understated. Besides, they have various significant industry uses. One outstanding feature of these metals is that they are characterised by substantial speculative price gyrations in the financial market.

People are using both gold and silver to trade online for potential gain because of their role in price speculations. They are traded without the trader physically owning the product in a similar way to currency trading. The main advantage is that many people can participate in the trading system. Gold, in particular is considered by most investors to offer substantial protection against the currency fluctuations specifically during economic downturn such as depreciation.

Merits of trading precious metals

1. Depreciation Protection

Both gold and silver offers substantial level of protection during economic depression. In particular, gold acts a strong store of purchasing power. It depends on this feature to offer substantial protection against depression. Currently there is no direct link between gold and major world currency as it was the case long ago. Both gold and silver are highly liquid and are widely accepted anywhere in the world. In particular, gold do perform well during the time when the central bank has used certain monetary policies to weaken its currency. In this case, the amount of currency in circulation will increase as expected but the amount of gold will remain relatively constant across the world.

2. Absence Of Liability

These two precious metals, gold and silver do not form a liability to bank, an individual, business entity or government. Companies can become bankrupt while the government can default on its debts. In the contrast, precious metal won’t be affected in a similar way. Your portfolio will remain its worth if you invest in gold or silver. Any other asset can crash to zero value but this can never happen with precious metals.

3. International Liquidity

The precious metal such as gold and silver offers the best liquidity value internationally. It will be easy for you to sell gold or silver to any part of the world because of its high liquidity. This is because there will be someone willing to buy your precious metal irrespective of your location. Most people are willing to buy precious metal because they don’t depreciate in value.

Disadvantage Of Trading Precious Metals

1. Low Rate Of Return

Trading either gold or silver leads to low profit levels as compared to Forex trading. This can be explained by the fact that they experience slight price change over time. Therefore you need to trade for quite a longer time to make a significant amount of return.

2. Appreciation Cycles

The only time when both gold and silver appreciate to highest value is during the time when the paper currency has depreciated in value.

3. Price Corrections

Both gold and silver experience substantial price correction just like any other commodity in the financial market. The disadvantage is that if you don’t hold these precious metals for long, the price correction can work against you.

Conclusion

Gold and silver are the two precious metals that play very important roles in the financial market. Currently, they are being traded only without necessarily owning the physical metal. For over the past decades, these two precious metals have proved very profitable to investors who intend to trade them online without owning the physical metal. Trading gold or silver online is similar to Forex trading. In fact, it is offered mostly by online Forex brokerage companies. Other than the widely known currency, you can choose gold or silver trading and similarly makes loads of profits.