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Gold: Record Level Of Short Interest And Potential Triggers

Aug. 01, 2018 9:35 PM ETSPDR® Gold Shares ETF (GLD)24 Comments


  • Managed money short positions is now at a record level where spikes  have indicated a reversal several times during the last few years.
  • Inflation is climbing and for how long can the FED keep raising rates without causing an economic slowdown.
  • Stock market valuations are lofty to say the least, was the Facebook Q2 report an early indication that expectations has gotten ahead of the market.
  • Geopolitical risks are presently being ignored, but there are plenty of potential triggers.
  • Sooner or later deficits will matter.

Investment Thesis

Gold (NYSEARCA:GLD) has been declining over the last four months from $1,350/oz to $1,220/oz and the sentiment is far from positive. There are however a number of potential triggers that can reverse the slide. The record level short interest in gold has the potential for a short squeeze if the market factors in any of the potential triggers.

Short Interest

We are presently at record levels for managed money short positions, which has increased during the decline i the gold price over the last few months. While in itself inconsequential, the positions have the potential to create a sharp reversal if gold were to catch a bid. We have seen similar but smaller spikes over the last few years and it has been common to see the price of gold to increase from those levels as managed money has been forced to cover.

COMEX Gold Combined Managed Money Short Positions data by YCharts

Figure 1

Uptick in Inflation

Over the last few years we have seen increasing growth rates for both consumer prices and producer prices. The below chart illustrates this trend. As both the short and long term interest rates have increased, the market has so far not been overly concerned by this trend.

Figure 2 - Source: TradingEconomics.com

We have high levels of debt across the world for Governments, Corporations and Households. When one considers the debt levels in the system, we will reach a point when interest rate hikes will slow economic growth as the portion of income required to service the debt overtakes discretionary spending. The big question is if that point is 3% for the 10-year rate, 4% or even higher than that?

Figure 3 – Source: Bloomberg.com

While it is important to point out that the overall U.S. delinquencies is far from what

This article was written by

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A cyclical value approach, presently focused on natural resources

I enjoy my anonymity, which I think is underappreciated in today's world, where I write under the name Bang For The Buck. I hold a BSc and MSc in Financial Economics and I have extensive experience with the investment management industry. I am the CEO of a small investment company. I primarily focus on turnaround stories, with attractive valuations, in cyclical industries.

Presently, I am very focused on the precious metals industry due to current monetary and fiscal policies. I am also invested in the uranium and oil & gas industries, due to underinvestments together with very attractive valuations.

I publish regular articles on Seeking Alpha and offer an investing group service called Off The Beaten Path where subscribers receives real-time updates on the portfolio, in-depth portfolio reports, and frequent updates on holdings companies. As the name suggest, I primarily invest in industries and companies that are underappreciated, which I have found provides more attractive returns.

I am always happy to respond to comments and questions in my articles during the first few days. More in-depth and ongoing discussions are had inside Off The Beaten Path.

Analyst’s Disclosure: I am/we are long GLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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