The Gold Report: You recently implied in an article titled “The Cocked Trigger” in Gold Newsletter that the current prevalence of short gold positions is actually a good thing for gold prices, especially if the Federal Reserve raises rates. That goes against everything we’ve been led to believe. Why do you say that?
Brien Lundin: We have an unusual situation in the gold market right now in that in the Commitments of Traders reports by the U.S. Commodities Futures Trading Commission, for the first time, the managed money sector has a net short position in gold. Typically, speculators have a net long position, and the commercials—jewelers, bullion dealers, etc.—have a net short position because they have to hedge. But the speculators are now net short, and the commercials have their lowest short position ever. It is a set up for a short covering rally at some point.
Add to that the possibility of a Federal Reserve rate hike at some point, and we could see a big, unexpected move upward in gold. I think the timing of a rate hike has been overhanging the gold market for well over a year. Relieving that issue could actually prompt a short covering rally. It would be kind of a sell-the-news event where the shorts figure that the trade is over and this is a good time to begin covering, more and more head for the door, and we have the rally underway.
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TGR: You also said the Chinese currency devaluation could be a spark for increased gold buying. Will that be a similar sell-the-news scenario?
BL: Yes. …read more