Trading Precious Metals In 2021: How The China Influence Is Driving Demand


Gold, Silver, Platinum & Other Precious Metals
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This commodity guide focuses on global metal trade. We explore which metals are the most traded in a rapidly changing global marketplace.

If you know enough about metals, you can jump to our list of regulated brokers.

If you are looking to get started trading precious metals, here are our top broker suggestions in :

Read on to find out about the two distinct groupings of metals and how these metal markets are driven by various industries and socio-economic development in developed and developing countries.

Why Are Metals Important?

Metals are elements, compounds, or alloys that are typically hard when present in a solid-state. They are usually characterized by their shiny appearance, electrical and thermal conductivity, malleability, ductility, and fusibility.

More than 75% of the elements in the periodic table are metals. Although we typically think of metals as present in the finished goods we use, their origin begins beneath the earth’s surface.

Some elements like aluminum and iron are abundant in the earth’s crust, while others such as palladium and gold are extremely rare.

However, producing even the most common elements requires enormous energy and manpower.

Which Industries Use The Most Metal?

The physical properties of metals make them ideal raw materials for building and manufacturing many essential items we use in our daily lives.

The construction sector uses metals to build bridges, homes, office buildings, railroads, and airports.

If you’re interested in which countries import or export the most metal products, see our Economic Overviews for 40+ countries.

The manufacturing sector uses metals to make automobiles, electronics, factory equipment, jewelry, cookware, dental equipment, protective shielding, cutlery, alongside other items.

Metals also play a role in the power and storage industries. They are important components in battery production and even play a vital role in the creation of nuclear energy.

Top Metal Producing Countries

Here is a list of the top metal producing countries today:

CommodityFlagTop Producing CountryMetric Tonnes
GoldFlag of ChinaChina404*
SilverFlag of MexicoMexico6,120*
PlatinumFlag of South AfricaSouth Africa130
PalladiumFlag of RussiaRussia86
AluminiumFlag of ChinaChina36,000,000
CopperChile FlagChile5,503,000
Iron OreFlag of AustraliaAustralia930,000,000
LeadFlag of ChinaChina2,100,000
MolybdenumFlag of ChinaChina90,000*
NickelFlag of IndonesiaIndonesia800,000
SteelFlag of ChinaChina996,000,000
TinFlag of ChinaChina85,000
ZincFlag of ChinaChina4,300,000
LithiumFlag of AustraliaAustralia42,000

*Data from 2018 or before. All other data was collected from Wikipedia’s 2019 aggregated mineral production summary.

Types Of Precious Metals

Metals are typically grouped into one of two categories:

  • Precious metals – rare, naturally occurring metallic elements
  • Base Metals – metals widely used in commercial and industrial applications

Precious Metals are rare, naturally occurring metallic elements with high economic value. They are unusual in that they are both industrial elements and trades.

Gold bar and nuggets
Image by Umicore AG & Co. KG, CC BY-SA 4.0, via Wikimedia Commons

Manufacturers use these metals to make electronic components, jewelry, dental equipment and catalytic converters among other things. Traders, on the other hand, collect coins and bars made out of precious metals.

Precious metals traders see these commodities as a form of money that holds its value better than printed paper money.

What Do Skeptics Say About Precious Metals?

Skeptics, however, argue that precious metals are simply rocks with little utility beyond their limited industrial uses.

Ironically, the high premium placed on precious metals by traders makes them too expensive and impractical for most industrial applications.

The precious metals with active commodities markets include gold, silver, platinum, and palladium.

The remaining PGMs – rhodium, ruthenium, osmium, and iridium – have much smaller markets compared to the main four.

Why Are Precious Metals Traded?

  • Gold: The main precious metal, utilized by speculators as a trading vehicle. Although manufacturers use the metal in some electronics parts, the majority of gold demand derives from jewelry manufacturers and traders.
  • Silver: Manufacturers use silver in both electronics and jewelry, while traders collect the metal in the form of coins or bars. Silver has historically traded at a fraction of the price of gold. Some traders track and trade the spread between gold and silver prices.
  • Platinum: Part of a group of six metals known as platinum group metals (PGMs), platinum is used to make jewelry and catalytic converters for cars. Traders purchase platinum for many of the same reasons they buy gold and silver.
  • Palladium: A member of the PGMs and is used to make catalytic converters, dental equipment, and electronics parts.

Types Of Base Metals

Base metals are used in a whole range of industrial and commercial applications including construction and manufacturing.

Their widespread use in everyday items makes them essential commodities in global markets.

While the mining industry narrowly defines base metals as non-ferrous metals excluding precious metals, the broader definition used by US Customs and Borders Protection includes commodities like Aluminum, Copper, Iron, Lead, Molybdenum, Nickel, Steel, Tin, and Zinc.

What Are Base Metals Used For?

Want to know what metals are primarily used for? See the table below.

CommodityPrimary UsesContract SizeFutures Exchange
Aluminum
soda cans
Aerospace, cans, automobiles, construction, electrical wiring, appliances, foil and packaging.25 metric tonsCOMEX
Copper
copper pipes
Electrical wiring, plumbing fixtures, transportation equipment, electric equipment, electronics, consumer products and industrial equipment. 25,000 poundsCOMEX
Iron Ore
iron ore
About 98% of iron goes toward steel production.500 dry metric tonsNYMEX
Lead
bullets
Batteries, protective shielding, ammunition and industrial sheets. 25 metric tonsCOMEX
Molybdenum
science flask
Molybdenum is primarily an alloying agent with steel. The metal is also used in the production of petroleum, electronics, fertilizers and lubricants.6 metric tonsLME
Nickel
electronics
Most nickel is used in stainless steel manufacturing. Other uses include electronics, plating, catalysts and rechargeable batteries.6 metric tonsLME
Steel
car
Construction and infrastructure projects, mechanical equipment and automobiles. 20 short tonsNYMEX
Tin
tin element
Tin is used as a coating metal and as an alloy to strengthen other metals.5 metric tonsLME
Zinc
zinc element
Zinc is principally used to galvanize steel and as an alloy to strengthen other metals.25 metric tonsCOMEX

A specialty metal not included in the above list is lithium. This unique, super light metal is now a mainstay in energy-efficient battery production.

Although there is no lithium futures market, traders can gain exposure to this metal through the shares of companies that mine it.

Chemetall Foote Lithium Operation via Wikimedia
Chemetall Foote Lithium Operation. Image by Doc Searls from Santa Barbara, USA, CC BY 2.0, via Wikimedia Commons

Current Global Metals Trends

Several long-term trends could create trading opportunities in metals over the next two decades:

  1. Chinese Demand
  2. Technological Innovation
  3. Environmental Regulations
  4. Population Growth
  5. BRICS Countries

Chinese Demand On Metal Prices

As with most commodities, the Chinese economy plays an enormous role in determining metals prices.

China still requires massive infrastructure to industrialize and urbanize its economy. As China builds this infrastructure, metals of all kinds will play a key role.

Market participants should monitor how China manages its resource needs and economy in the years ahead.

Here are three of three of the many areas to consider:

  1. More cars, factories, and metal equipment in the country mean more opportunities to recycle. This development has the potential to siphon away demand from mining.
  2. Restrictions on mining activity (see Environmental Regulations section below) have the potential to limit supplies and raise prices.
  3. Monetary policy from the People’s Bank of China can have an important effect on metals demand. Stimulating measures can stoke demand for metals, while tighter monetary policies can depress demand.

How Does Technology Impact Precious Metals?

Many mining companies simply can’t extract and process minerals at a cost that allows them to make a profit. As a result, the mining industry has faced tremendous financial challenges in recent years.

While depressed prices for some metals may be one reason, a bigger problem is the high cost of mining.

One way mining companies are confronting this challenge is through trades in technology.

Automated excavation equipment, electric vehicles, X-ray diffraction, and sensor-based sorting of minerals are some of the new technologies that could transform the industry into a more profitable sector for traders.

Environmental Regulations On Metals

The mining industry faces intense global scrutiny for the environmental footprint it leaves.

Many mining practices contribute to contaminated groundwater, loss of biodiversity, land erosion, and destruction of crops.

Most countries are now taking these problems very seriously. In China, for example, crackdowns on environmental pollution have caused the shutdowns of more than half of the lead and zinc mines in parts of the country.

Are Mining Industries Complying?

However, industries and consumers still need metals, and the mining industry is beginning to create cleaner ways of doing business.

Renewable energy sources for mining, less invasive surface mining technologies, and advanced water reclamation efforts are a few of the ways the industry is tackling environmental challenges.

Traders could profit from trading in these trends.

How Does Population Growth Affect The Metal Industry?

The World Economic Forum estimates that the number of people living in cities could reach 6.4 billion by 2050. Increases in the world population and demographic shifts could may create new trade opportunities in metals.

This urbanization trend should create an enormous demand for metals as cities build their infrastructure.

However, the location of mines is likely to be far away from cities and, in many cases, in poor underdeveloped regions of the world.

This dichotomy could produce huge supply/demand imbalances in metals markets. Solving these logistical problems could be a profitable venture.

BRICS Countries: The Mining Powerhouses

The five BRICS countries – Brazil, Russia, India, China, and South Africa – are becoming increasingly dominant players in the metals and mining industry.

The total market value of mining assets in these countries exceeds $1 trillion.

Recently China’s state-owned gold mining company formed an investment fund with a Russian-controlled trading entity. If cooperative alliances such as this one become the norm in the future, then a small handful of entities could wield tremendous power over metals markets.

On the other hand, if the BRICS countries continue to compete with one another, then the current market structure would remain intact.

BRICS Leaders at the 2016 G20 Summit in China
BRICS Leaders at the 2016 G20 Summit in China. Image by Prime Minister’s Office, Government of India, GODL-India, via Wikimedia Commons

Where to Trade Metals?

If you are looking to get started trading metals or other commodities, here’s a list of regulated brokers available in to consider.

IMPORTANT: CFDs are not available in the USA due to local regulation, and regulated brokers do not accept US citizens or US residents as clients.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. <b>Between 53.00%-83.00% of retail investor accounts lose money when trading CFDs.</b> You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Precious Metal Indices For Traders

Traders can follow the metals markets by monitoring the performance of some of the main indices that track the sector.

The following metals indices are a good barometer for trade demand in the sector since they measure the performance of metals futures:

IndexLast SaleDescription
S&P GSCI Precious Metals Index


This index provides investors with a reliable and publicly available benchmark for investment performance in the precious metals market.
S&P GSCI Industrial Metals Select
This sub-index of the S&P GSCI provides investors with a reliable and publicly available benchmark for investment performance in the industrial metals of the commodity market.
DBIQ Optimum Yield Industrial Metals Index Excess Return 
This index is composed of futures contracts on some of the most liquid and widely used base metals and is intended to reflect the performance of the industrial metals sector.

Other Learning Resources On Metals

Traders can find additional information on trading metals and the mining sector from the following sources:

US Geological Survey (USGS)

The National Minerals Information Center compiles statistics and information on the worldwide supply of, demand for, and flow of minerals and materials essential to the US economy.

Mining.com

Mining.com has up-to-date market pricing and news on both the precious and base metals sectors. The site also features analyses and forecasts of metals prices by leading industry experts and educational material on the industry.

Industry Trade Groups

Industry group websites are a great way to learn about the economics, news and fundamental drivers of individual metals prices. These organizations publish timely content on issues that impact their sectors (e.g., trade, mining regulations, environmental initiatives, etc.) Copper Development Association Inc.

Here’s a small sample of metals trade organizations:

The London Metals Exchange (LME)

The LME is the most important global exchange for industrial metals trading. The exchange publishes comprehensive market data, news and educational materials, and stock reports on base metals markets.

CME Group

This American financial company operates futures and options exchanges including the New York Mercantile Exchange (NYMEX) and the Commodity Exchange, Inc. (COMEX), an entity that merged with NYMEX.

The CME publishes daily volume and open interest reports for precious and base metals commodities, educational courses on metals trading, trading tools, brokerage resources, and other information about metals markets and trading.

Further Reading On Commodity.com

Commodity.com has an entire section on precious metals where you can learn about:

To explore other commodity categories, see our guides on agricultural and energy commodities.

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