Record Net Short Position and Record Bearish Sentiment Fuel For Next Rally
The latest Commitment of Traders report shows that the small speculators in the gold market are now all crowding together on the short side of the market. They have now established a record short position against gold. These dramatic events often occur at major trend changes and provide the fuel for major rallies. If gold starts to move higher from here, and I expect that it will, a lot of short sellers will be trapped on the wrong side of the market and we could see fireworks as they all try to unwind at once.
Meanwhile, the 'smart money' commercial traders (the bullion banks), who usually short gold as a hedge against their clients' (mining companies) long positions, have closed almost their entire short position. The commercial traders recognise the gold market has been completely sold out and the next move is likely higher.