Thursday, July 5, 2012

Advantages And Disadvantages Of Trading Precious Metal - Silver And Gold

Probably you have heard about online trading these two precious metals - 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. Just like the online currency trading, this is done without owning the physical gold or silver. 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. Protection Against Depreciation

These two precious metals offer significant level of protection against depreciation. In particular, gold acts a strong store of purchasing power. This is what helps it provide protection against depreciation. Currently there is no direct link between gold and major world currency as it was the case long ago. These two precious metals are also highly liquid because they are widely traded across 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 such cases, the amount of currency in circulation can significantly increase but the amount of gold will not be affected.

2. No Liability

Precious metals such as gold and silver are not in any way a liability to an individual, bank, business entity or government. It is possible for government to default is debts while a company or bank becomes bankrupt. In the contrast, precious metal won't be affected in a similar way. The portfolio invested in precious metal like gold and silver will maintain its worth. It is possible for any other types of asset to loss its value to zero but this cannot happen with these 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.

Demerits Of Trading Precious Metals

1. Low Profitability

As compared to currency trading, both gold and silver has low rate of return. This can be explained by the fact that they experience slight price change over time. To make high profits, you must trade these metals for a longer duration.

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

Just like any other traded commodities, both gold and silver are subjected to price correction. This is very disadvantageous because the price correction can work against you if you don't your metal for long time.

Conclusion

The two precious metals gold and silver has significant roles in the financial market. The current development in the industry allows people to trade these metals without physically owning them. These precious metals have proved to be very profitable when traded online for the past few decades. 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.

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