Taking profits is one of the hardest things to do, timing the market is very hard, so it is necessary to understand the market. Currently, there are several catalysts upwards, a new inflow of so called “Robinhood” traders is one of them. Robinhood, a U.S. trading platform, saw a three million new clients entering their platform over the last months and grew its client base to a total of 13 million users. These users are inexperienced and have entered risky assets and even caused a 600%+ rise in bankrupt Hertz stock, which is complete irrational. The following chart says it all: The chart shows the Google Trend search for “day trading”. The chart speaks for itself.
This trend of new money of amateur traders is the biggest warning for people to step in. As the narrative goes that institutional investors missed this bull run, maybe the next sell-off is going to be bigger as these kind of traders get cold feet sooner and are here to take quick profits rather than investing on the longer term. Interesting is to see that yesterday physical gold has not lost as much as usually during the last sell-offs in March. This might be an indication that yesterday’s losses were driven by amateur traders taking profits. However, as markets plunge nothing is safe, not even gold. As corona cases start to rise and states in the U.S. continue to reopen, more losses on financial markets are imminent. Using the incubation period theory, what we see actually is the rise in cases of 1-2 weeks ago. This is the reason why we are going to see new losses on Monday when the rise in corona cases will even be greater. The FED is not likely to intervene straight away, it will probably wait until the next meeting in July for a new stimulus package. Wednesday it already announced that rates will stay at zero at least until the end of 2022. This shouldn’t be news, because they don’t even have choice. The interest rate faces immense downward pressure due to QE and ultra low interest rate dependence of companies won’t let them rise the interest rates. Gold stocks rose on the news, these gains however where blown away the next day after corona cases rose for three days in a row.
Gold remains bullish on the long run, however in the next 1-2 weeks we are probably going to see big losses in which gold will also lose terrain. Interesting will be to see if physical gold also will lose terrain, if that is not the case it is completely rational to buy gold stocks as they drop. For the very short term The Golden Investor puts his money in corona stocks like Alpha Pro Tech (APT) and Lakeland Industries (LAKE). These PPE companies have seen profits multiply and raised its dividends tremendously. They are both great plays as a hedge against new corona cases, the only thing which can make markets plunge at the moment. To be protected against more short term losses The Golden Investor has also bought some Virtu Financial (VIRT) and Flow Traders (FLOW) stock, these flash traders are a great hedge against high volatility the coming week(s).
Time will tell if The Golden Investor made the right choice, it is hard to make these kind of decisions, especially if on the long term gold is a great investment, sometimes it is advisable to not fight the market. As financial markets just came off all-time highs, this marks the right moment to step back and watch the market fight with itself. Money is not going to save markets from new corona losses and as traders start to see that this corona dominated market is far from over it is a great time to take profits. Whether we are going to see a second sell-off and if gold (stocks) remain put or new lows will be tested remains uncertain. The Golden Investor remains skeptical and has build an ultra-defensive portfolio to profit from possible new financial chaos.
Disclaimer: The Golden Investor is not a fortune-teller, be sure to make the right decisions in accordance to your own financial situation, this is not investment advise or anything like that.