Commodity Trading: Gold and Silver

Since ancient times, precious metals have been the articles of ornamentation and monetary worth, alike. In the modern world, these metals find wide scale uses in jewelry-making, industrial use, investments, and speculation. Gold and silver are the most popular precious metals with universal acceptance. Their affordable prices, structural stability, ease of handling, liquidity, high returns on investments, and global acceptability, make them attractive trading propositions. The investment options in gold and silver include the stocks of mining companies, physical metal holdings, ETFs, and certificates. The current fiscal 2010 is expected to be a fruitful year from the point of view of gold and silver investing.

The US subprime crisis-led global recession destabilized the national economies and paper currencies worldwide. Some of the direct consequences of economic disequilibrium are the fluctuating forex rates accompanied by inflationary/deflationary conditions. This leads to volatile currencies and erosion in monetary holdings. Gold and silver are relatively insulated from such factors as their international prices are fixed daily based on demand and supply. When the currency value goes unpredictable, the investors start looking for alternatives and take exposure in gold investments.

Globally, sovereign gold holdings are important appeal drivers for gold. Traditionally, various nations maintained US Dollar reserves. Due to the consistent devaluation of Dollar over the last few years however, the central banks worldwide switched their sizable holdings to gold investments, pushing the already high demand even higher. As the demand rises, the prices follow, enhancing the worth of gold holdings further. Last December, the gold prices crossed $1,200 per ounce.

In the current scenario, the rationale for gold holdings is that the upside potential on the demand side remains high. Not only the retail investors, but also the fastest growing economies in the world, the BRIC (Brazil, Russia, India, and China) are planning to hedge their positions more aggressively than before. As far as the prices are concerned, the markets have already factored in a correction of almost 10% since December 2009. On the supply side, the position is weakening. The supply has slackened over the years. It is expected to level-off or even plunge in the coming years. Although, some newer reserves have come into light in certain underdeveloped nations, the cost of exploration remains a deterrent. The recycled gold supplies and new search ventures may not be able to keep up with the ever-growing demand in a couple of years. Therefore, the medium to long-term potential of gold is high.

The growing industrial demand will keep driving the prices of silver in future. Silver finds great use in electrical and electronics industry. In the retail segment, silver is used in manufacturing ornaments, decorative articles, foils, coins, bars, and bullion, to name some. The supply of silver is also limited and the demand is rising. With the economic recovery and increased manufacturing activity, the demand for silver is forecasted to rise.