Gold's Volatility and correlations explained

As many Traders made the inquiry regarding Gold's Volatility and correlating assets:


Explanation #1: Gold’s Price-action is basically affected by #2 factors: the proved reserves of Gold commodity / financial markets and macro-economic events. Particular events that have effect over Gold’s Prices have to do with one of the #2 mentioned groups; for instance, the global financial market is under uncertainty in the sense of the trust of Investors on it, the #2008 financial (U.S. Housing) crisis is an example of distrust on being a company shareholder, and it can be verified how the Price-action of Gold rose rapidly during the following Years until a slight recovery / relief in the financial market took place. Gold reserves add to the supply of the metal to the market, and the Price-action is going to be directly affected by how much Gold central banks store and emit to the global market, along with the supply - demand balance. The mining reserves add their influence too, because the Gold market can be speculative at the times, and while mines produce more or less Gold and augment the circulating supply around the world, Price of Gold is directly affected. Global macroeconomic factors also have a direct effect on Gold Prices such as: Inflation, CPI, unemployment rates, Stock index returns, Treasury Bond Prices, Interest rates, DX among


Explanation #2: As discussed, Gold’s Price-action could be very Volatile to be predicted in some cases with accuracy in the Short and Medium-term; however, they behave cyclically in relation to DX and Bond Yields (in some cases, Stock markets and Usd-Jpy pair). This knowledge opens a door for better understanding the behavior of Gold’s Price-action in the Medium and Long-term. As Gold is a commodity, it tends to behave in a positive relation to energy Prices and in a negative relation with financial markets and macro-economic indicators. It is so, since Gold is seen as a safe-haven when hazardous times hit the global economy, and taken to a second place when the economy is doing well and thus it is more attractive to invest in companies than in Gold itself. Although the supply of Gold on the international markets is negligibly increased by small gains in production and some Central banking policies, these increases are not enough to meet the demand that has been going on since the financial crisis of #2008, resulting in a Gold deficit for covering a Stock market and macro-economic downfall that may occur. In other words, the supply of Gold, although increasing slightly in absolute terms, is generally decreasing in terms of availability in this kind of circumstances. The Gold rush then is predicted to be stronger after #2021 Year and a repetition of history would take place if that happens, that is, Gold Prices would decrease dramatically as the DX should engage a rally.


Explanation #3: A crucial fact has to be faced, Gold’s Price-action can be violently Volatile at the times (currently is), which has a High variance to be predicted with the desired precision for Investors like mining companies, Central banks, and all the speculative agents of commodity market, which makes it sometimes a High risk osset also, in other words: any prediction of it’s nominal or real Prices sometimes has a very High level of uncertainty of being even slightly accurate. Many models for predicting Gold’s Price-action have been built including my own successful formula I have been working on for many Years. On of the Gold’s models propose linear or non-linear relationships between multiple variables and the Gold’s Price action. The fact that macro-economic cycles affect Gold is most of the times ignored by Investors (retail Traders), or partially taken into account, when this fact is of great importance in order to predict Short and Medium-term trends on Gold with decent accuracy, and also to understand the current circumstances about the market or other asset classes. The latter is supported on the fact that the Price-action of Gold relates in a direct proportional way to Gold reserves and Prices of metal products, while it relates in a converse proportional way to financial market indexes and global macro-economic indicators and oscillations / aswell about potential Gold bubble Prices and financial crisis which may be ahead, by using data since #1900 to #2021 Year. As the DX and Bond Yields (along with Usd-Jpy in some cases / structure), is a financial variable that is reported Daily and affects Gold’s Price-action conversely (as direct correlating assets Traders should pay attention to), my secret is that one of the best way’s to Trade Gold is to spot the cycles from the past since Gold reacts always the same on financial phenomenons.


Technical analysis: One of the bigger charts caught my attention where ATH from #1,980 Year was Sold back later on. Second ATH, Year #2008 (Housing crisis), Gold engaged the aggressive takedown on the aftermath. Another ATH seen on August #2011, was Sold instantly and engaged multi-Week Descending Channel. Many similarities with fractal from near past, August’s ATH (#2020 Year), where Gold engaged serious decline and is currently Trading below that level. As Gold is cyclical asset, according to my model, Gold tends to struggle after pricing new ATH, as soon High is priced, aggressive takedown occurs and Price-action forms Long-term Descending Channel, and that’s why I am heavily on Bearish side (Selling every High) as Shorting is the best way to make Profits as a retail Trader. Keep in mind that with this Trading week's macro-economic Fundamentals all negative wise for DX, the market was yet again perfectly timed for strong Bearish takedown. Keep in mind that current Buying sequence on Gold could have easily gone to the other side. The latest eruption in the U.S. - China Trade dispute pushed a widely watched Treasury market recession indicator to the Highest alert since #2007. Rates on Bond Yields sank aggressively, completely erasing the surge that followed #2016 elections. At one point, they yielded #32 basis points less than #3-Month bills, the most extreme Yield curve inversion since the lead-up to the #2008 crisis. Gold could be in a significantly Lower-rate environment for a while. The outlook for Medium-term configuration on Gold declines resonated in options markets, too, which Price-action is Targeting typically a drop through #1% this Month after current Overbought run. If current #1,752.89 benchmark isn't broken by #10+ points, I also note the potential for a further leg down in the Bond Yields curve. Potentially, the curve starts to decline because the Fed is being pressured by a combination of data and obviously downside risks on the market, which advises retail Traders to be more careful. Heavy Buying in Fed funds futures contracts since the Fed delivered its quarter-point reduction lately means the market is now pricing in another reduction in November. My formula points that the signal from the curve suggests money markets should be pricing in a Higher probability of the Fed’s policy rate unchanged all the way towards #Q1. There’s a huge disconnection now between printed money and background of it. So bottom line, the answer to the inquiry is not easy to give. Following correlations, constant monitoring is needed, and checking how Price-action behaved in past etc. Serious experience is needed.