Gold: The Asset That Struggles to Explain Itself

I typed the first half of this post into my notes app on Saturday. The second half is about my consequential trade.

It’s been a while since I’ve posted about any of my paper trading antics. The last time was a year ago placing naked trades on crude oil! (I know, but we have to start learning somewhere).

I hope you enjoy some of my lines of thinking. As always, feel free to share your thoughts or counter points in the comments / ping me a message on LinkedIn. 

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(Written on 31/1/26)

The sudden volatility in gold seems to be more bankers panic from reprices in big tech stocks.

The tremor was seen in the S&P curbing itself from the $7,000 mark, and then gold reversions from $5,500 now looking to get to $4,500.

As mentioned previously in the blog, Gold can follow sharp sell-offs in equities - even if it is supposed to function as safe-haven hedge for stock market worries. This can be because A: general cutting of risk across portfolios and taking profitable gold positions into cash and/or B: (for larger movements) liquidating gold positions to fund margins and losses.

From what I can see, the price of gold left its ‘fundamental value’ a long time ago.

And its price behaviour has become increasingly separated from this.

Some people think this is a cause for concern - I don’t think it is - as its behaviour and function is now misaligned with any physical fundamentals you could draw up on it.

It is functioning as an important and time-tested vessel for economic concern. Just amplified massively as the dollar comes under scrutiny and the stock markets exist as bulbous as ever.

Plus, it (sort of) wins across the board regarding inflation. If the new fed-chair is a bit of a yes-man - not saying he is - and rates stay low, gold makes sense.

If people suspect he may try to cut the book and raise rates - for many gearing up with gold purchases acts as important diversification for a portfolio - if the stock-steam train shows signs of slowing.

Gold also - in my opinion - is the closest thing aligned to the umbrella term of “asset”. For historical sentiment and also just by nature.

As capital concentrates, economies aren’t necessarily justifying their borrowing, and wages don’t keep up in real purchasing power terms… owning a valued piece of the world’s pie just makes sense in general.

Anyways… to be specific about this recent drawdown… even just looking at the violent and unforeseen shape of it feels systematic.

I think if the S&P 500 continues to tick away again in a calm manner - moving towards $7000 - come the Monday opening, buying this gold dip is my play.

The same concerns I have about the US stock markets remain. I believe that a lot of AI expectations are not in sync with the timeline for them, and the expected return for investment therefore underhits the mark.

Plus, if you dig a bit deeper, you start to see how complicated and long-winded this AI debt stack is becoming. Often circular in nature too (investments between AI tech firms).

Even a company as big as Microsoft has started relying heavily on externally directed requests to borrow.

As these investments and expectations continue to prop up the markets, I believe a bit of a waiting game ensues, and consequently gold will tick along nicely side-by-side.

Come Monday morning, I am waking up early to check data/news on the indices and also see if the Asian market display signs of resistance on this gold drawdown.

Although the U.S. market won’t be open, if I gain any conviction of resistance, I’m placing some gold spot-contracts down before the U.S. opening.

May be a bit risky not to wait and see US behaviour (for both gold and the indexes).

However, another great learning opportunity for me as will just be using one of my $100,000 fake paper accounts.

(My dad stopped me from placing any real risk - as to be fair - I am not in the position to place risk right now. I require every last penny of that student loan for the remainder of term).

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2/2/26:

Here are some screenshots of Monday morning. I placed my trade - 20 contracts of spot-gold - at the $4,715.07 price.

I took my punt after doing some more thinking and looking into how the Asian markets were reacting.

I could’ve hedged it by selling some mini-futures contracts on the S&P 500 before its opening, but decided not to as my (fake-money account) risk appetite was okay stomaching a drawdown to just under $4,450.

Here is my position now on the third of Feb.

My plan is to cash in half of it at some stage when I think it might meander back closer to its previous high, and then continue to hold the latter and monitor closely.

This is one of the shorter time-frame paper trades I have committed - as the others are with fundamental views for multiple weeks/months.

Mainly because I think as a retail trader it is practically impossible to have any edge on shorter time scales. You know none of the flow, a lot of it is algorithmic, and 95% on the daily is commercial transactions (especially markets like Forex).

Too much noise, too easy to get sucked into a gamified situation.

I think sitting at home with your CFD trading account is setup for more slow-horse, creative macro-thinking and questioning.

And so I generally try to avoid any rash or short-term plays… It’s too easy to get sucked into that world. And ultimately becomes unfounded gambling.

Cheers for reading.