In Trading It's Never Just One Thing
In trading, there is a natural tendency to fixate on one thing instead of the bigger picture.
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We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://financialsource.co
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We have a great question from Maziar, who has a question about Gold’s recent movements saying that we’ve seen Gold moving lower recently, well apart from the spike higher we’ve seen today of course, but barring today, and Maziar wants to know as Gold is seen as an inflation hedge, why hasn’t it moved higher alongside inflation expectations.
Thanks for the question Maziar, I’m going to run through the answer for Gold specifically in the video, but I also want to use it as an opportunity to touch on another topic when it comes to our trading, and that is our natural tendency to fixate on the one thing instead of the many.
And this is really a very common thing for traders, and something that I often catch myself doing when looking at the markets. You see, from an early age we’ve been taught how to problem solve, and it’s a fantastic skill to have, but in our efforts to try and solve a problem it often causes us to fixate on the one challenge in front of us by looking at it more subjectively instead of the bigger picture view or the more objective view.
So, what does this have to do about Gold prices and inflation expectations? Well, you’re right that inflation expectations are a very important driver for Gold prices as Gold is often considered as an inflation hedge. However, even though Gold is considered as an inflation hedge, it’s not the only driver that can and will affect Gold’s price.
As a store of wealth, as a safe haven, as a precious metal, as a currency of sorts in terms of how it trades, as a commodity, there is always going to be numerous factors and drivers that are influencing the price of Gold, and it’s not only Gold of course but any other asset that we are trying to trade. Arguably for gold, with it’s many different hats, there might often be a lot more going on compared to other assets, but the point is that there are always going to be multiple factors that can and will influence it’s price.
So, for Gold for example, even though Gold is expected to move in tandem with inflation expectations due to it being an inflation hedge, as a commodity it also has a traditional inverse correlation to the Dollar, as a store of wealth and safe haven it has a traditional strong inverse correlation to real yields, which means any big fluctuations in nominal bond yields is important, as a safe haven any sudden changed in risk sentiment will be important as well.
Arguably, the biggest driver of all these will be real yields, which means Gold’s sensitivity to sudden changes in nominal bond yields will be arguably higher compared to the others, but Gold can be sensitivity in varying degrees to any one of those factors for multiple different reasons as well.
So, as per the title of this video, like in life, it’s never just one thing, it’s always a combination of things, desiring a more objective approach in our approach. You’ll often see financial articles or television shows finding one talking point and just fixating on that and attributing everything that going on in markets to just that one thing, and yes of course sometimes it might be one big event that is creating ripples across the market that’s certainly normal, but it’s not always the case and often times it’s a whole list of intertwined and interlinked factors that are driving asset prices.
A good tip that I’ve often trained myself to do is make sure that I broaden my knowledge of the various assets and asset classes that I’m trading so that when I see a huge price move in either of them that I have a mental checklist that I can run through to find a possible cause for the move, and sometimes you won’t be able to tick any one of the boxes in your checklist to find a root cause, and in those times it’s best to take things easy and wait for some clarity on the reason for the moves.
The good news about that is that it really does get better as you learn more about the markets. If I see Gold tanking or ripping I immediately look at equities to see if it’s risk tones, after that look at the Dollar to see if it’s that, then look at bond yields to see if it’s that, then look at inflation expectations to see if it’s that, if I can’t find a cause in any of that then I look at the technicals to see if it might be a breach of a key level, and if after all that the move doesn’t make sense then I don’t engage the market.
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If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://financialsource.co
-----
We have a great question from Maziar, who has a question about Gold’s recent movements saying that we’ve seen Gold moving lower recently, well apart from the spike higher we’ve seen today of course, but barring today, and Maziar wants to know as Gold is seen as an inflation hedge, why hasn’t it moved higher alongside inflation expectations.
Thanks for the question Maziar, I’m going to run through the answer for Gold specifically in the video, but I also want to use it as an opportunity to touch on another topic when it comes to our trading, and that is our natural tendency to fixate on the one thing instead of the many.
And this is really a very common thing for traders, and something that I often catch myself doing when looking at the markets. You see, from an early age we’ve been taught how to problem solve, and it’s a fantastic skill to have, but in our efforts to try and solve a problem it often causes us to fixate on the one challenge in front of us by looking at it more subjectively instead of the bigger picture view or the more objective view.
So, what does this have to do about Gold prices and inflation expectations? Well, you’re right that inflation expectations are a very important driver for Gold prices as Gold is often considered as an inflation hedge. However, even though Gold is considered as an inflation hedge, it’s not the only driver that can and will affect Gold’s price.
As a store of wealth, as a safe haven, as a precious metal, as a currency of sorts in terms of how it trades, as a commodity, there is always going to be numerous factors and drivers that are influencing the price of Gold, and it’s not only Gold of course but any other asset that we are trying to trade. Arguably for gold, with it’s many different hats, there might often be a lot more going on compared to other assets, but the point is that there are always going to be multiple factors that can and will influence it’s price.
So, for Gold for example, even though Gold is expected to move in tandem with inflation expectations due to it being an inflation hedge, as a commodity it also has a traditional inverse correlation to the Dollar, as a store of wealth and safe haven it has a traditional strong inverse correlation to real yields, which means any big fluctuations in nominal bond yields is important, as a safe haven any sudden changed in risk sentiment will be important as well.
Arguably, the biggest driver of all these will be real yields, which means Gold’s sensitivity to sudden changes in nominal bond yields will be arguably higher compared to the others, but Gold can be sensitivity in varying degrees to any one of those factors for multiple different reasons as well.
So, as per the title of this video, like in life, it’s never just one thing, it’s always a combination of things, desiring a more objective approach in our approach. You’ll often see financial articles or television shows finding one talking point and just fixating on that and attributing everything that going on in markets to just that one thing, and yes of course sometimes it might be one big event that is creating ripples across the market that’s certainly normal, but it’s not always the case and often times it’s a whole list of intertwined and interlinked factors that are driving asset prices.
A good tip that I’ve often trained myself to do is make sure that I broaden my knowledge of the various assets and asset classes that I’m trading so that when I see a huge price move in either of them that I have a mental checklist that I can run through to find a possible cause for the move, and sometimes you won’t be able to tick any one of the boxes in your checklist to find a root cause, and in those times it’s best to take things easy and wait for some clarity on the reason for the moves.
The good news about that is that it really does get better as you learn more about the markets. If I see Gold tanking or ripping I immediately look at equities to see if it’s risk tones, after that look at the Dollar to see if it’s that, then look at bond yields to see if it’s that, then look at inflation expectations to see if it’s that, if I can’t find a cause in any of that then I look at the technicals to see if it might be a breach of a key level, and if after all that the move doesn’t make sense then I don’t engage the market.
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If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
