Why gold is poised to pop like a jack-in-the-box
Gold traders are now extremely bearish on the price of gold bullion.
It’s a sign that the price of the yellow metal will likely jump.
Investors wanting to profit from such a move might consider buying the SPDR Gold Shares (GLD) exchange-traded fund which holds bars of solid bullion.
Gold prices have been walloped this year by the rising dollar. The prices of all metals tend to move inversely with the value of the greenback.
One troy ounce of gold bullion would recently fetch $1,196, down 13% from $1,368 on January 26, according to data from Bloomberg.
Professional futures market traders are currently betting heavily on a continued decline in the price.
The net position of such speculators could be characterized as highly unusual. The decision of so many more speculators to bet on a decline versus an increase in prices is now more than two standard deviations from the average according to a recent report from New York-based financial firm Macro Risk Advisors. That means such positioning is highly unusual.
It shouldn’t be surprising that traders are betting this way because ever since late January it has been a profitable investment decision. If nothing else the science of investing is one of doing what works right up until it doesn’t work anymore.
What we also know is that when investors get either extremely bullish or extremely bearish, then the market is much more likely to move in the opposite direction. In other words, the positions of the futures markets speculators sometimes get considered to be a contrary indicator.
Right now the historically high short position of such traders would suggest that gold prices are about to rise (that is, they will likely move in the opposite direction of the futures market bets.)