Gold technical analysis predicts future events by analyzing the history of the gold market, but its effectiveness is disputed due to the complexity of understanding the reasons for value changes, including technological demands. The lack of understanding why something happened is a major obstacle to the technique.
A gold technical analysis is a breakdown of the history of the gold market compared to present and future events. Like all forms of technical analysis, this process is about prediction. The underlying theory simply states that any situation will repeat itself if it happens again. If the price of gold changed when a particular event happened, if that event happened again, the price would change in the same way. The validity of much of the theory of technical analysis is disputed in modern economics.
The fundamentals of gold technical analysis seem very simple, but it is actually very complex. To understand the reason for a change in market value, the analyst must understand everything there is to know about the situation at the time. This means that he must study the context of the demand areas and the supply areas to understand the general chain of events that led to the eventual change. This often ends up necessitating further study to understand the basis for actions taken in foreign lands.
Carrying out a technical analysis of gold is even more complex than with other materials. In the past, gold was used as a measure of wealth. This means that the changes in buying and selling gold were filtered through the basic understanding that it was a non-essential luxury good. In modern technology, gold-gold plating is used in a large number of technologies as a ductile conductor. This means that gold is not only rare and valued as a luxury material, but is also in strong technological demand.
Gold technical analysis needs to look at historical data for the metal to see how social changes lead to value changes, but it must also anticipate the effect of technological demands. This modern use has relatively small amounts of data compared to more historical uses. As a result, the reasoning behind the fluctuation in gold values is often difficult to pin down.
While the concept behind gold technical analysis seems sound, in practice, it’s not as effective as an investor might think. The biggest obstacle to the technique is the lack of understanding why something happened. For example, a South American gold mine loses most of its production during a dry spell; This change causes the price of gold in the United States to rise. While this may sound very simple, it may not be. The drought may not have been important; The instability could have been caused by a neighboring country, a bad fishing year, or any other factor.
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