The returns from Gold Prices have so far outperformed all the major assets including Stocks and Money market instruments. On a YOY basis, Gold’s Total Return now stands around 35%. Major players such as Financial Institutions and High scale Investors have diversified large part of their investments into Gold and Gold related securities. Technical wise, The Uptrend we see in Gold Prices is the effect of present market sentiment. Recently due to the length and duration of the Trend, Price Action is showing some signs of Over extension and possibilities of a reversal. Take a look at this analysis on Gold weekly chart.
Gold – Structural Uptrend
Gold is rallying upside because of two factors – Global Pandemic fear and Safe heaven demand. Since the prices are rallying higher from last couple of months, it’s a long-term structural uptrend. But given the length and duration, it looks like the trend is overextended. On the other hand, rising volume indicates increasing strength and conviction in the Trend.
Only Price Action seems to indicate the Overextension of Uptrend. In terms of Volume and Market Sentiment nothing has changed. So does it mean the trend will continue further? Or Is there a possibility of Trend reversal? Instead of trying to predict the outcome, an alternative and wise choice is to follow the Price Action. Traders should look for potential Price action setups on both sides and must trade them with proper risk management.
