Aggressive Buying In Gold On Tariffs And China; Tech Stock Buying Continues On Trump's Paper Tiger Move

To gain an edge, this is what you need to know today.

Gold Tariffs

Please click here for an enlarged chart of gold futures (GC_F)

Note the following:

• The chart shows aggressive buying in gold.
• Aggressive buying in gold has been triggered by several factors:
  • Concern about tariffs on one kilo gold bars.  Expectations have been for no tariffs on gold.
  • Switzerland is a major gold refining hub.  The President of Switzerland returned from visiting the U.S. without a change in the 39% tariffs.  It is not clear how tariffs will impact gold being refined in Switzerland.
  • People's Bank of China (PBOC) buying gold for the ninth straight month in a row.  China's gold reserves now stand at 73.96M fine troy ounces compared to 73.90M at the end of June.
  • India may follow by buying more gold.
  • President Trump has been threatening to impose more tariffs on India for being a member of BRICS as BRICS nations attempt to do more trade that is not denominated in dollars.  Interestingly, President Trump has not issued any such threats against China.
  • A serious geopolitical blunder by the U.S. to push India away from a close alliance with the U.S. and India responding by moving closer to China and Russia.  
• The up move in gold has been dampened by the prospect of a ceasefire in Ukraine.  Without this, the move up in gold would have been even sharper.
• In our analysis, there is incongruency between stocks being at an all time high and gold running up.  Here is the key question for prudent investors: "How will this incongruency be resolved?"
• As full disclosure, SPDR Gold Trust (GLD) is in our portfolio.  iShares Silver Trust (SLV) and Newmont Corporation (NEM) are in our portfolio.  NEM has broken out and is staging a very strong up move.    
• The Treasury auction yesterday was weak – this should concern prudent investors.  Initially, the stock market dropped on the weak auction, but the momo crowd aggressively bought the dip.  Here are the details:
  • $25B 30-year Treasury bond auction
  • High yield: 4.813% (When-Issued: 4.792%)
  • Bid-to-cover: 2.27
  • Indirect bid: 59.5%
• Very aggressive buying in tech stocks continued yesterday and is still continuing in the premarket.  This move was triggered by President Trump's 100% tariffs on semiconductors turning out to be a paper tiger and Apple Inc (AAPL) getting an exemption from the tariffs.
• Sentiment in the stock market continues to be extremely positive.
• Vicious short squeezes are taking place in a large number of stocks, driving stocks higher.
• In our analysis, a majority of the buying in stocks is coming from retail investors.  Institutions have turned cautious.  

England

Bank of England (BOE) has cut interest rates as expected on slowing employment.  Prudent investors should watch if President Trump uses BOE as an example to urge the Fed to cut interest rates.

Magnificent Seven Money Flows

In the early trade, money flows are positive in  Apple (AAPL), Amazon.com, Inc. (AMZN), Alphabet Inc Class C (GOOG), and NVIDIA Corp (NVDA).

In the early trade, money flows are neutral in Meta Platforms Inc (META) and Microsoft Corp (MSFT).

In the early trade, money flows are negative in Tesla Inc (TSLA).

In the early trade, money flows are positive in SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust Series 1 (QQQ).

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust (GLD).  The most popular ETF for silver is iShares Silver Trust (SLV).  The most popular ETF for oil is United States Oil ETF (USO).

Bitcoin

Bitcoin is range bound.

What To Do Now

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges.  The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.  If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.  A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less.  Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.