How to Trade Spot Metals?

If you’re new to forex (FX) trading, you may not know that many FX platforms also allow you to trade gold and silver.

In this article, we will cover what a metal currency pair is, how you can trade spot metals on FX platforms, and what are the prime movers of gold and silver prices.

What are Currency Pairs?

First, it’s important to understand what currency pairs are.

A currency pair is a comparison that tells you how much one currency is worth when compared to another currency. For example, EUR/USD tells you how many US dollars (which is the quote currency) you would need to purchase one euro (which is referred to as the base currency).

When you trade currencies, you are speculating on the exchange rate between the two currencies:

If you think the price of EUR would rise against the USD (or, the exchange rate goes up), you would buy EUR/USD.
Conversely, if you think the exchange rate would drop, you would sell EUR/USD.

Metal/Currency Pairs

Trading spot metals is also referred to as trading metal/currency pairs. Metal/currency pairs are nearly identical to currency pairs; the only difference is that you’re comparing a metal (e.g., gold) against a currency.

XAU is the symbol for gold
XAG is the symbol for silver

XAU/USD tells you how much you’d need in USD to purchase one unit of gold. (The unit for both gold and silver is one Troy ounce.)

This price is referred to as spot or the spot price. It is the current, real-time price of a commodity – in this case, of an ounce of gold or silver.

Note that “trading spot metals” is also referred to as “trading metal-currency pairs.”

Trading gold and silver is very similar to trading currencies:

If you think the price of gold/silver will rise (or the exchange rate will go up), you would buy the metal/currency pair
If you think the price of gold/silver will fall (or the exchange rate will go down), you would sell the metal/currency pair

Once you know how to trade, you must understand the various factors that can influence gold and silver prices.

Factors Impacting the Price of Gold and Silver

Gold and silver are seen by many investors and traders as safe haven assets to hedge against inflation or market uncertainty. For this reason, flight into gold is sometimes called a “fear trade.”

Because of this popular view of gold as a safe haven asset, you may see its price rise in times of economic uncertainty — especially when there are concerns about inflation.

Gold has fewer industrial applications compared to silver. As such, you may see market fluctuations across industries impacting the price of silver more than the price of gold.

Like all commodities, gold and silver prices are affected by:

Geopolitics, including mining regulations, labor strikes, trade wars, and regional strife.
Supply and demand
Natural disasters, such as pandemic lockdowns of mines, or earthquakes, flooding, and hurricanes.

You will also want to learn the art of technical analysis, which uses technical indicators to help you understand better when you should exit or enter a trade.

As a new trader, consider learning the ins and outs of trading gold and silver using a demo account from a reputable broker. Not only will this get you familiar with the platform and its tools, but it will also give you an idea of how the market behaves (albeit on a short-term basis).