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Gold and Silver Trading

Gold and Silver along with platinum are known as Bullion at MCX. Both these metals are traded with huge liquidity and volume at MCX.

Appearance

Gold, the yellow metal, is shiny and glamorous. It is soft, malleable and highly ductile. The unique properties of gold make it very versatile. It has a high resistance to oxidation.

Silver, the precious white metal, is lustrous. Like Gold, it is also soft, malleable and ductile. It is the best-known conductor of electricity and is also known for its thermal conductivity.

Both of these metals are looked upon as an investment since ancient times. With the introduction of metal trading on MCX, both of these metals are traded actively and with huge volumes.

Contracts

The four different variants of both the metals are traded at MCX

Of all the four contracts of Gold, the Big Gold and the Gold mini contract are most actively traded on MCX and are most liquid.

Of all the four contracts of Silver, 30Kg contract and the Silver Mini are most actively traded on MCX.

Top 5 Gold Producing Countries

•    China

•    Australia

•    Russia

•    The USA

•    Canada

Top 5 countries having most Gold reserves

•    The USA

•    Germany

•    Italy

•    France

•    China

Top 5 Silver producing Countries

•    Mexico

•    China

•    Peru

•    Russia

•    Australia

Top 5 countries having most silver reserves

•    Peru

•    Australia

•    Poland

•    Chile

•    China

Few facts about gold

Not many people know that Gold which is famous for its glamorous shine is also used in the space industry, technology and has medicinal benefits too.

Due to its property of being highly reflective, Gold is used in the space industry to protect space vehicles such as space crafts and satellites from solar radiation.

Almost all the electronic device has a small amount of gold because it does not corrodes and allows rapid and accurate transmission f data from one device to another.

It is a good conductor of electricity.

Gold is used to treat the arthritis patients and also helps in reducing swelling and bone damage. Gold salts are highly beneficial in relieving stiffness and pain in joints.

Few Facts about Silver

Silver is a by-product of mining zinc, lead, copper and gold and is not present as a native element in earth’s crust.

It is the best-known conductor of electricity and also has high thermal conductivity.

Its anti-microbial and anti-toxic properties make it suitable to be used for the medicinal purpose as well as for cosmetic products.

Silver is highly photosensitive which makes it good to be used in film photography.

As it is less expensive than gold, it is more widely used for the various industrial purpose.

Factors affecting the price of both the metals

Demand and Supply equilibrium is the common factor that affects the price of both the metals.

The price of silver is largely affected by the value of Dollar. Silver and dollar exhibit the inverse relationship, so the price of silver raises when the dollar weakens and vice-versa.

Supply of silver in the market is mainly from the two sources-Mining and sale of scrap. Now owing to the restriction on mining, the supply of this grayish white metal is severely affected. Due to weak supply and constantly increasing demand, the price of this metal is on the fire.

Gold Price is largely affected by the Central Bank Policies. Central Bank controls the gold price by contracting and expanding the money supply. Also, as it holds the large reserves of gold, the prices of gold are affected when it tries to accumulate or sell the reserves.

Mining of gold takes time and is costly as well. Therefore, the demand of gold usually exceeds its supply resulting in its soaring price.

Correlation between the price of Gold and Silver

Correlation shows the relationship between two commodities. Positive correlation tells that the price of the two commodities move in tandem whereas negative correlation shows that the price of two commodities moves in the opposite direction.

The research shows that the price of Gold and Silver are positively correlated on an intraday basis as well as at the end of the day basis.

Also, both of these metals make good trading pair based on the pair trading techniques.

Silver does not show any positive correlation with the crude oil whereas there is a strong positive correlation between the prices of Gold and Crude oil.

Reasons to Invest in Gold and Silver

Traders can invest in these precious metals for the following reasons

•    Both the metals provide a hedge against inflation and serve as a cushion at the time of crisis.

•    The strong demand side of both the metals assures guaranteed return on investment.

•    Portfolio Diversification can be one of the reasons to invest in these metals.

Thumb Rule for investing in both of these metal

This rule works as a thumb rule that works for the investment in both the metals-

Further the contract expiry, lower is the liquidity.

This means to earn return trader should invest in the contracts that are maturing or near to their expiry as they are more liquid than other contracts.