Howestreet.com - the source for market opinions

ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

October 14, 2018 | Last Week Was Just A Taste Of The Coming Gold Short Squeeze

John is author or co-author of five books, including of The Money Bubble, The Collapse of the Dollar and How to Profit From It, Clean Money: Picking Winners in the Green-Tech Boom and How to Profit from the Coming Real Estate Bust. A former Wall Street analyst and featured columnist with TheStreet.com, he currently writes for CFA Magazine.

The gold and silver futures markets got even more unbalanced last week, with speculators (who are usually wrong at the extremes) going as short as they’ve ever been and commercials going even more long.

Gold COT gold short squeeze

Silver COT gold short squeeze

Here’s the gold data in chart form:

Gold COT chart gold short squeeze

These are historically huge imbalances that – if the action in the paper markets still has predictive value – point to a gold short squeeze in which the speculators who are now betting that precious metals will fall are forced to cover those positions by buying, in the process sending the price up dramatically.

On Thursday we got a sense of what that might look like. Stock markets around the world sold off, which sent capital scurrying for cover. Some of that capital flowed into gold, which chased futures speculators out of some of their shorts. The result was a nice pop in gold:

Gold Price gold short squeeze

But this barely dented speculator short positions, as we’ll discover next Friday when the COT report covering Thursday’s action is released. So the real gold short squeeze is still to come.

Risk-Off, Everywhere

The other interesting thing about last week was that stocks, bonds and cryptos all fell while gold and silver were rising.

Gold versus other assets gold short squeeze

These aren’t especially notable moves, and can be reversed out in a single big “risk-on” trading day. But again, they’re a taste of what’s coming when it finally dawns on investors that every major asset but gold is overvalued and therefore prone to correct if not crash. Even instruments previously thought to be safe havens like government bonds and cryptocurrencies have become bubbles destined to pop.

Gold is the only thing that’s hasn’t been bid up to bubble territory in the past few years, which makes it cheap and therefore relatively safe. Combine this undervaluation with the even more important fact that precious metals have historically been THE safe haven in times of financial and geopolitical stress, and there’s a real possibility of global capital not just trickling but pouring into this tiny market. That gold short squeeze will be one for the history books.

STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the HoweStreet.com Weekly Recap.

October 14th, 2018

Posted In: Dollar Collapse.com

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site

*
*

This site uses Akismet to reduce spam. Learn how your comment data is processed.