I want to use nginx as a reverse proxy for Google App Engine application to support naked domain as described here. If I use this scheme, will all the traffic go through the server that hosts nginx or client will connect to App Engine directly? Can it be a bottleneck for performance and availability?
Using that method, all your traffic would run through the NGINX server so that would be a bottleneck, and you'd have to make sure it had enough capacity to work well. It would also cause some latency (Approximately 2x latency on every request, because your client would have the latency connecting to NGINX then NGINX would have the latency of connecting to AppEngine)