Speculation on the precious metal market is common, and many traders make huge profits from this type of activity. Most people assume that speculation occurs with large amounts of metal, but the truth is that some investors may use this strategy with trades as small as 1 gram gold weight. The size of the trades is not the most relevant factor, the number of trades that the speculation includes on a regular basis is where the investor will make profits with the right trades.
When investors speculate they are attempting to make a profit from a trade without ever taking possession of the commodity that is being traded. This is different from day trading, where an investor buys the investment vehicle and then sells it a short time later. Day traders may not hold a position for more than a few hours or a day, but speculators utilize a strategy that may last longer and can take weeks or months to complete in some cases.
Some blame market speculation for the current high prices, and this strategy does not just affect the precious metal market either. All commodities are open to speculation, including food commodities and energy products. This has led to some calls for tighter regulations for these necessities so that consumers are not as adversely affected by market speculation.
Speculation can be risky, and sometimes the price of the commodity does not move in the expected ways. When this happens the investor may only lose the contract deposit that was paid for the futures option. If the price does move the right way then the contract can be sold for a higher price and the speculator makes a profit.
Speculation is not a strategy that is right for all investors, but this strategy can be right for some who are not averse to significant risks on the market. The strategy should be carefully thought out before it is attempted, to try and minimize the risks involved.