Gold and silver have long been great symbols for richness and security. Each time the economy acts worse, many investors would treat these precious metals as a hedge against uncertainty by diversifying their portfolio with them. If you are interested in commodities trading, consider gold and silver as your initial investment. Here’s a beginner’s guide to trading those valuable assets.

Commodities trading is buying and selling primary agricultural products or raw materials. These can be crude oil, agricultural products, among others, though gold and silver are prominent due to their rich history and physical connotation. Unlike equities or bonds, commodities like gold and silver hold a tendentiously constant value over time, thereby attracting those who seek stability. The trade process generally takes place on commodity exchanges where these metals are bought and sold.

Getting involved with gold and silver commodities trading starts with knowing how these markets work. Both gold and silver are traded on significant exchange sites such as the New York Mercantile Exchange (NYMEX) and the London Metal Exchange (LME). The price of gold and silver varies through the day, as it is affected by such factors as supply and demand, political activities, and changes in investor sentiments. Unlike stocks, however, the prices of gold and silver are rather insusceptible to company earnings reports but highly susceptible to inflation data and central bank policies.

  In order to realize any money when trading in gold and silver, the trader relies on his ability to predict the movements in the price of these metals. Gold and silver often respond to changes in the global economy. For example, when inflation is on the rise, many investors turn to gold as a store of value. On the other hand, the price of silver can rise faster with the expansion of the economy or even because of a rise in interest rates as it has applications in industry. Thus, novices in commodity trading should remain aware of all the happenings in the world and the marketplace.

There are different modes of investing in gold and silver. Some traders buy the physical metal stocks and keep these in secure places. Others utilize gold and silver futures contracts, agreeing to buy or sell a certain amount of the metal at a particular date for a certain price. Futures are traded on commodities exchanges. Their popularity is rising among those willing to speculate on price changes, with no actual ownership. The other common way is with the use of an Exchange-Traded Fund, or ETF wherein you will be investing in gold or silver but would not really have to hold it in your hand.

Trading costs are of course a critical consideration. Buying and holding physical gold or silver sounds very simple, but there will be rental fees for holding, risks of theft as well as loss. Futures contracts and ETFs tend to incur lower transaction costs but require a clear understanding of how markets work. More importantly, gold and silver can be very volatile; they can serve as stability when things are unpredictable but may cause extremely wild price fluctuations.

Another possible advantage of the gold and silver trade is their liquidity. These markets are huge, vibrant, meaning they can swim in or out pretty easily. The size and international nature of the market also offer the possibility of diversification. For instance, while the price of gold is going down, the price of silver may be going up or vice versa. If a trader understands how these metals are interlinked, the better he or she can decide which way the price will go and how to spread risk.

Just like every other form of investment, the risk in trading commodities is reflected in currency fluctuations, general global economic changes, which can cause decreases in prices of gold and silver that would otherwise be considered safer investments. A beginner should thus take ample time to learn about market dynamics.