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Understanding Gold Price action by looking at big picture

If you wondered what’s happening with gold and couldn’t makes sense of Price action then cool down! You’re not the only one, Many other traders also baffled with Gold and metals such as silver, Nickel etc. Clueless Long term Investors are wondering whether its real bottom or same bogus moves that usually happens with gold. Many are pointing out to escalating geopolitical tensions with North Korea and citing safe heaven flows as the main reason behind the sudden surge in gold prices. Of course it’s just one of the reasons, not a complete one.

Fear driving gold price action

What’s happening with gold?

From the perspective of macro, there are 2 reasons behind the recent rally. One is a good explanation for short-term price fluctuations and the other one is a potential long-term driver.

1) The recent geopolitical tensions are hitting the performance of stock markets,( in red across the globe) Keep in mind – I am not referring to one particular market, but most of the stock markets in global level are not performing better. This is causing fear among Big money players such as Pension funds, Portfolio managers and other entities with leverage and liability. As usual, they’re allocating some of their proportion into gold (if they don’t then they won’t survive!) causing the prices to surge suddenly.

2) A potential long-term driver of gold prices is FED, if we watch closely by ignoring distractions, they’re hiking interest rates in a slow and gradual phase. Though rate hikes may strengthen dollar for a shorter time period, but over long-term it creates a laggard stock market giving absolute less returns. If the global economy can’t digest the rate hikes and strong dollar, then markets can tumble into correction, giving a chance for gold to shine again. Some big money players such as Investment banks and Institutions are becoming more aware of this possibility and gradually adding gold into their portfolio.

As I said before, Gold is a safe heaven asset during fear and uncertainty, why? Because big money players aggressively allocate gold in their portfolios during these periods (aka Black swans). Expect the positive bias in gold to continue as long as global market sentiment dominated by fear factors. Changes in North Korean tensions and external factors may lead to a short-term reversal.

Traders keep in mind, though markets can be traded by looking at the charts and reading price action, we can understand the markets only when we see the big picture.


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About the Author:

Balaji is a Speculator, Investor and Trader (All in All!!!) and self published author. Trading in the Markets since decade, have seen more ups and downs along with institutional trader's lifestyle. He usually trades Nifty, Bank Nifty, Commodities, Futures cum Options around both Indian and global Markets. Balaji applies highly analytical and systematic Price Action strategies He blogs passionately about Trading strategies, Price Action Trading, Technical analysis, Macro events, Market setups, Financial and Economical topics. Apart from Trading and Blogging, Balaji also mentors aspiring Traders and Investors on becoming successful in highly competitive financial Markets.

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