If you look closely at any US Dollar note, you'll see In God We Trust, this has been America's motto since 1956. It replaced its unification slogan of E Pluribus, Unum from 1776.
But in America, there's a second motto and that's In Gold We Trust. Gold (and precious metal) coins have been selling at a significant premium since the March lows.
Gold has been on a tear since the coronavirus low in March. And has rallied over 30% since June as investors move away from the USD. The USD index has fallen to a fresh two year low and could push lower. A big move away from the USD into Gold has been driven by the stimulus in America. And the prospect of another $1 trillion stimulus package due to be announced before Friday.
What’s surprising is global markets are rising in a time that Gold and precious metals are rallying. Gold is typically negatively correlated to equity markets.
But has become correlated in the shorter term because of uncertainty.
See the chart below.
Gold and Equity markets correlate?
With the amount of uncertainty and negative news flow, it’s surprising to see investors continue to push equity markets higher after a spectacular V-Shape recovery.
Even the JSE Top40 index (future) has recovered to levels seen in Jan and Feb. When investors flee risk assets, we will see a second bout of selling come through.
V-Shape Recovery losing momentum…
Take a look at the chart below to see the V-Shape recovery and the loss of momentum in the Top 40 index (future). A ceiling is forming just above 52,000.
Here’s 3 things investors have to do to protect their portfolios:
1. Use stop losses – I prefer mental or paper stop losses, if you aren’t someone to follow them, insert stop losses in the market. Trail your stop losses up as the share prices rise.
2. Diversify into other assets – Due to the Rand weakening in risk off periods, hard currency offers protection in Rand terms. Investors can use local ETFs to access these.
3. Use Structured products with guarantees…4.
Discover: 103% gains on the table for savvy investors, thanks to this 15 June announcement. Here’s why…
Short-term Trade Idea: Short the Top40 future above 52,000
Short-term traders should look to build up a short position as the Top 40 future rallies higher.
We will place an interim target of 50,000 and a stop loss of 53,000. We will lower the target price as the pullback intensifies and trail the stop loss lower to lock in gains.
Recent Ideas Update…
TFG Rights issue, price remains above break even…
TFG’s share price has remained above the R64.00 level we indicated traders should short above. We will continue to hold this short waiting for a retracement below R60.00. If you haven’t got in yet, short TFG above R64.00 and read last week’s article
on the rights issue.
Bidcorp closed for 20% gain on margin
We will look to short BID again should the share price spike higher, towards the top of the trading channel new R290.00
Longer term value opportunities
Our recent buys in EOH, BLU and DGH are still at below the entry levels suggested last week. We see these as good longer-term value plays for a portfolio.
Here’s the entry levels…
• Buy Blue Label below R3
• Buy EOH below R5.50
• Buy Distell below R77.50
See you next week.
Contributing Editor, Money Morning