Gold doesn't pay interest, rust, or do anything useful for industry — and yet it's been money for five thousand years. Understanding why people still want it is the key to trading it.
6.1Precious metals — gold, silver, platinum, palladium
The four precious metals trade on the COMEX/NYMEX with deep, liquid futures and easy ETF access.
| Metal | Future | ETF | Character |
|---|---|---|---|
| Gold | GC (100 oz) | GLD, IAU | The monetary metal. Mostly investment/jewellery demand; the ultimate safe haven. |
| Silver | SI (5,000 oz) | SLV | Half precious, half industrial — higher beta than gold, far more volatile. |
| Platinum | PL | PPLT | Industrial (autocatalysts, especially diesel); supply concentrated in South Africa. |
| Palladium | PA | PALL | Autocatalysts for petrol engines; thin, volatile, supply-concentrated (Russia/SA). |
What actually moves gold?
The single most important driver is the real interest rate (the yield after inflation). Gold pays no income, so when real yields are high, holding gold has a big opportunity cost and it tends to fall; when real yields are low or negative, that cost disappears and gold shines. The dollar is the second lever (gold is priced in USD, so a stronger dollar is a headwind), and safe-haven demand is the third (crises and geopolitical risk pull money into gold).
| Catalyst | Simple reaction | The non-obvious second-order |
|---|---|---|
| Real yields fall | Gold up (lower opportunity cost) | The link has weakened at times as central-bank buying (de-dollarisation) became a structural new source of demand independent of yields. |
| Hot inflation print | "Inflation hedge" → gold up | Often backfires short-term: hot CPI → Fed hawkish → real yields up → gold down. Gold hedges inflation over decades, not over the next CPI. |
| Risk-off crisis | Safe-haven bid → gold up | In an acute liquidity crunch gold can fall first as funds sell winners to raise cash, then rally once panic peaks (March 2020). |
| Strong dollar | Gold down (USD-priced) | Less true for non-USD buyers — gold can hit records in euros or yen while flat in dollars. |
You can trade precious metals four ways (Part 4.4): futures (GC, SI), ETFs (GLD/SLV hold the physical metal — minimal roll drag, unlike commodity-futures ETFs), miner equities (leveraged, contaminated by company risk — see Part 4.4), and physical bullion (coins/bars; you pay a premium and storage but own it outright).
All the gold ever mined — roughly 210,000 tonnes — would be worth on the order of $15+ trillion at recent prices, and it sits mostly above ground in vaults, jewellery and central-bank reserves. Daily turnover in gold (London OTC + COMEX + ETFs) runs into the hundreds of billions of dollars — extraordinarily liquid for a commodity. Verify with the World Gold Council.
6.2The gold–silver ratio
Gold $2,300, silver $28.75:
The ratio is a classic relative-value gauge. A high ratio (say 90+) suggests silver is cheap relative to gold; a low ratio (say under 60) suggests the reverse. Traders express it as a pairs trade — long the cheap metal, short the expensive one — to bet on mean reversion without taking a flat view on whether metals go up or down. Because silver is the higher-beta metal, it tends to outperform gold in metal bull markets (ratio falls) and underperform in busts (ratio rises).
6.3Base metals & the London Metal Exchange
The industrial metals — copper, aluminium, zinc, nickel, lead, tin — are the physical inputs to construction, manufacturing and the energy transition. Copper is the bellwether ("Dr. Copper", said to have a PhD in economics because its price reads the global growth cycle so well).
The LME is not like other exchanges
Most base metal benchmark pricing happens on the London Metal Exchange (LME), which has quirks worth knowing:
- The "ring" — the LME still has open-outcry trading in a physical ring, alongside electronic.
- Prompt dates & the "3-month" price — instead of fixed monthly contracts, the LME quotes daily prompt dates, and the headline reference is the rolling 3-month forward, not a front month.
- Warrants & warehouses — physical metal is stored in LME-approved warehouses and represented by warrants; warehouse stock levels and queues are closely watched supply signals.
(US copper also trades as COMEX HG, in cents/lb, 25,000 lb per contract — the version most retail platforms quote.) The LME nickel crisis of 2022 — when a giant short squeeze forced the exchange to cancel trades and halt the market — is the cautionary tale every base-metals trader knows: thin contracts plus concentrated positions can break even a centuries-old exchange.
6.4What moves base metals?
| Catalyst | Simple reaction | The non-obvious second-order |
|---|---|---|
| Chinese stimulus / strong China data | Copper & base metals up (China is ~half of demand) | Watch the type of stimulus — property-led lifts metals far more than consumer-led, even at the same headline size. |
| Global recession fear | Industrial demand → price down | Copper often leads equities lower — it's a real-economy gauge with no earnings to cushion it. |
| Energy-transition demand (EVs, grid) | Structural bull case for copper & nickel | The "green" demand story is long-term; near-term price is still set by the China cycle, so the two can diverge for years. |
| Falling LME warehouse stocks | Tightening supply → price up, backwardation | Stocks can be moved between warehouses or financed off-market, so headline inventories sometimes mislead. |
| Strong dollar | USD-priced metals down | A mining-supply shock (strike, outage) can override the dollar entirely for a specific metal. |
Keep the two worlds separate in your head. If your thesis is about real rates, the dollar or a crisis, that's a precious-metals trade (gold/silver). If it's about global growth, China or the energy transition, that's a base-metals trade (copper and friends). Mixing them — "metals are going up" — is how people end up long the wrong one. Copper and gold can, and regularly do, move in opposite directions.