Gold Is Vulnerable To A Short Squeeze

August 19, 2013 at 08:12


Gold prices have risen in seven of the last eight trading sessions.

Since the brutal sell-off that gripped the gold market throughout much of the first half of 2013 came to an end at a price of $1179 an ounce on June 28, the metal has rallied 16.6% over the past month and a half to $1375 at Friday’s close.

Sterne Agee analysts Michael Dudas and Satyadeep Jain identify seven things driving recent gold price appreciation in a new report.

“We believe improvement in Chinese economic activity, strong physical demand as evidenced by 54% year-on-year jump in Chinese gold purchases in [the first half of 2013], geopolitical tensions in Middle East, soft U.S. inflation data raising concerns regarding tapering, reversal of ETF outflows, physical market tightness, and short covering – especially given record high short contracts on Comex – have propelled gold and silver higher,” say the analysts.

Given how many are still shorting gold, though, Dudas and Jain argue that further adjustments in positioning could fuel a continued rally.