Precious metals and Stock market – A Correlation

Hi friends,

As I posted my bearish views on the precious metals before the week started; and so did the metals fell – or was I just lucky with the timing, God knows!

But, people familiar with markets would definitely agree on this fact that whenever the prices rise or drop in metals, opposite effect is seen in the equities market – if not always, certainly most of the times. Many times I have met people who would buy or invest money in metals and as prices would fall they would buy stocks; in an expectation to have minimal impact on the net portfolio of assets. This is good practice at times, but not all times.

Sometimes correlations work and sometimes they just don’t. People who don’t argue with the market movement and adjust their trades accordingly, are certainly on fair side of value comparing to people who would argue with the market at any given time.

Knowing correlations should only be as a swiss army knife. Use it to enhance or protect your investments. By saying this I mean, assuming we have certain positions long in the metals market and there is a sudden fall in stocks. Now, this time should be taken to analyse and add up your positions to have a better value of winning. Contrary to this, lets say stocks start to rise and rally drastically; then this is the time when we must look to size our positions and adjust the risk value accordingly and wait to build up the positions as conditions look favourable overtime.

Nothing is untimely where markets are concerned. We can trade any time and win any time – we just need to know the way to do things at “that time” and make it “Right time”.

-TD

PS: Friends, I may not be updating the blog every day; due to lack of time, but I try to be connected to twitter @wizajitmc most of the time. For any queries feel free to contact me :https://wizajitmc.wordpress.com/about/

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