Gold shorts about to get a serious toe toasting…

2 mins. to read

Well, it looks like yesterday may have been the reversal daythat the bulls have been looking for in gold & silver after the weeks of seeming terminal pain… The two precious metals rallied nicely off bottoms around $1180 & $18.40/oz respectively hit in overnight trade on Thursday out of Asia. Gold closed out at $1231/oz and, importantly, recaptured and closed above it’s 3 day exponential moving average ($1230) – usually a good indicator of a short term rally at least.

The rebound yesterday is all the more confirmatory to us, coming off an extremely oversold RSI measure (see chart below). Next stop is the 7 day exponential moving average centred around $1258-60/oz and we think this could be hit early next week. We do need to break $1240 decisively first on a closing basis nowever – the levelswhere the metal stalled on Wed & Thurs of last week.

What really caught my eye however is the level of shorts in gold as revealed in the Comex chart below. This is the highest measure seen on an absolute basis for nearly 20 years. The net long is the lowest in 10 years too (chart 2 below).

The ingredients seem to be all in place for an unprecedented squeeze in our opinion and with demand for the physical outstripping supply and inventories continuing to drop, it is only a matter of time before the paper price become re acquainted with fundamentals.

Finally, for your further delectation, take a look at the chart below which is a measure of the Gold Mining index relative to the gold price. Interesting reading eh? They are the cheapest they have been relative to their product for more than 70 years. That is one measure, coupled with the “stupid cheap” valuations, that gives us great confidence that on a 6 month – 2 year view that prices in this area will be much higher.

Our Precious Metals fund (aswell as our Natural Resources and Macro funds) are being opened up to the investing public early next month in our sister co – Titan Investment Partners. This last few weeks we have been deploying capital into those companies within the mining area where we believe that a serious re-rating is due and in fact placed our last tranche of capital into the market yesterday just ahead of the rally.

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