Base metals got their name because they are less expensive and more common than precious metals like gold, silver, and platinum. Base metals are frequently more abundant in nature and can be mined more easily. Because of its widespread use in construction, changes in the price of copper can provide insight into the health of the world economy. Copper prices are frequently used by economists as a leading indication of global economic growth. If demand for copper increases and prices rise, the global economy may be improving. A reduction in the price of copper, on the other hand, can signal that economic activity is slowing in critical areas of the economy, such as homebuilding.
Furthermore, some base metals have unique qualities that are not shared by other metals. Nickel, for example, is a major component of stainless steel; zinc is used in galvanising steel to prevent corrosion; and the Roman Empire employed lead for a variety of applications, including pipes, bathtub linings, cosmetics, and paintings. Base metals, like precious metals, have some important limitations that make them less appropriate as currency. The first disadvantage is that they are frequently insufficiently valued to serve as a compact store of value. Lead, for example, sold for less than one dollar per pound in four of the eight years from 2013 to 2020. Base metals' chemical characteristics and price volatility are also significant drawbacks. Base metals are less lasting currencies because they rust and tarnish more rapidly. Corroded pennies that are only a few decades old are widespread in the United States. Because they are mostly made of the basic metal zinc, they corrode quickly. Gold coins from thousands of years ago, on the other hand, are frequently in good condition. Several exchanges throughout the world provide contracts to trade in base metals, but the London Metal Exchange remains the international trading hub (LME). The Chicago Mercantile Exchange (CME) in the United States also offers base metal futures contracts. q The CME's physically delivered futures contracts are designed to satisfy the changing needs of the global marketplace. They provide a cost-effective platform for managing price risk across the whole value chain. Futures markets are used by both producers and consumers to hedge their price exposure to basic metals. Copper miners, for example, may sell copper futures ahead of a mining haul to hedge the risk of prices falling before the haul is ready for market. The primary advantage of basic metals is that they are inexpensively priced. For many applications, such as construction, base metals are as good as or better than precious metals. Base metals have several serious weaknesses that make them less suitable as a currency than precious metals. Chemical properties and price volatility are two other significant disadvantages of base metals. Because of their widespread use in industry, basic metal prices are typically more volatile.
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