If you need some type of inflationary hedge or just a speculative trade to try to make a profit, metal futures trading is what you need to know. Metals have been around since the Earth’s beginning but have only begun to trade in the open market in the 20th century. Metal futures prices trading is very important in that it gives producers a way to hedge their physical inventory.
You can trade metal futures on Gold, Silver, Copper, and Aluminum on the COMEX exchange in downtown Manhattan. You can trade Platinum and Palladium on the NYMEX exchange right below the COMEX. These exchanges are both in the same building on 1 North End Avenue in New York City. These exchanges were established solely for the use of commodity trading. Sometime in mid 2009 the NYMEX and COMEX floors will combine because of the amount of space open on the NYMEX exchange. Since the start of electronic trading, the floor volume has deteriorated significantly.
There are two kinds of individuals who trade these metals, hedgers and speculators. A hedger is someone who owns the actual commodity and stores it in a warehouse or some other type of safe place, and has a cash interest in metal prices. For instance a jeweler has a business interest mostly in Gold. He has the physical gold in his shop and sells it to his customers for a profit. Let’s say the price of Gold drops significantly in the futures market. He is worried that he will not be able to meet his overhead cost now that the precious metal prices are lower than they were before. What he can do is sell the exact (or close to it) amount of Gold that he has stored, in the futures pit. This way he is long the actual commodity and short the future. He has put on a hedge, and, if the price of Gold goes lower he will be making money on his short that will offset the price decline of his actual. Speculators are in the market solely to make a profit and help the liquidity to make bids/offers much tighter. The liquidity is usually much higher in Gold than in Silver, and both of these are usually higher than Platinum or Palladium. The more the liquidity the easier it is to get in or out of a position. When you first start trading these metals, trade with gold first as you will have a possible easier time getting out of a position with more liquidity.
Trading in futures and options involves a substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.
