Metals Markets

Metals are divided into two broad groups. Precious metals, mainly gold, silver, platinum and palladium, are valued for monetary, investment and some industrial uses. Industrial (base) metals, such as copper, aluminium, nickel and zinc, are used in construction, manufacturing, electrical systems and batteries. Their prices respond to different forces: precious metals react strongly to interest rates and the dollar, while industrial metals track economic growth, especially in China.

Precious vs industrial metals#

The main exchanges#

• COMEX (part of CME Group): gold, silver, copper futures, priced in dollars per ounce or pound.
• London Metal Exchange (LME): the global hub for industrial metals, with a unique structure of daily prompt dates up to three months ahead. In March 2022, LME nickel prices more than doubled in about a day amid a short squeeze, and the exchange suspended trading and cancelled trades, a controversial decision.
• London bullion market (LBMA): the over the counter centre for physical gold and silver, with twice daily price benchmarks.
• Shanghai Futures Exchange: a major venue for copper, aluminium and other metals, reflecting Chinese demand.

What drives metal prices#

Precious metals#

• Real interest rates: gold pays no income, so higher real yields make it less attractive. See Gold.
• US dollar: a stronger dollar usually weighs on precious metals.
• Safe haven demand during crises and geopolitical stress.
• Central bank buying: central banks have bought large amounts of gold in recent years.
• Industrial use: important for silver, platinum and palladium (electronics, solar panels, car catalysts).

Industrial metals#

• Construction and manufacturing, with China consuming about half of global copper and aluminium.
• Energy transition: electric vehicles, power grids and renewables use large amounts of copper, nickel and lithium.
• Supply disruptions: mine strikes, ore grade declines, export restrictions, energy costs for smelting.
• Inventories in LME, COMEX and Shanghai warehouses. See Storage and Inventories.

The gold silver ratio#

gold silver ratio = gold price / silver price

The ratio shows how many ounces of silver buy one ounce of gold. It has ranged widely, from below 40 to above 120 in March 2020. Some traders treat extremes as signals that one metal is cheap relative to the other. See Silver.

Ways to trade metals#

• Futures and options on COMEX, LME and other exchanges. See How Futures Contracts Work.
• Physically backed ETFs for gold, silver, platinum and palladium.
• Mining stocks, which are leveraged to metal prices but add company risks.
• Physical bars and coins, with storage and premium costs.
• Spread trades: gold vs silver, platinum vs palladium, copper vs aluminium. See Futures Spreads Explained.

Risks#

• Volatility: silver, palladium and nickel can move very sharply.
• Squeezes: concentrated positions can cause dramatic price spikes, as in nickel in 2022 and silver in 1980 and early 2021.
• Policy risk: export bans, tariffs and sanctions (for example on Russian metals).
• Liquidity in smaller metals.

Frequently asked questions#

What is the difference between precious and industrial metals?#

Precious metals such as gold and silver are valued for investment and monetary uses, while industrial metals such as copper and aluminium are mainly used in construction and manufacturing.

Where are metals traded?#

On exchanges such as COMEX, the London Metal Exchange and the Shanghai Futures Exchange, and in the London over the counter bullion market.

What drives metal prices?#

Precious metals respond to real interest rates, the dollar and safe haven demand; industrial metals respond to economic growth, China and supply disruptions.

Next, study the most famous metal in Gold.