Huge Rally Fuel in Place for Gold Futures

Long story not so short:  the big commercials, normally permanently short COMEX gold, have reduced their net short positions to below record levels.

The momentum-trading hedge funds, have reduced their normally net long positions below record levels.  But that's not due to them reducing their aggregate long positions--it's from hedgies piling on aggregate short positions.

Since the big commercials (gold mining producers, refineries, jewelers, bullion banks) represent the biggest money as well as usually being the most informed, we can deduce the current slide in gold prices is close to being exhausted.  Meanwhile, the "hot" money hedge funds are betting on further declines.

Should a reversal occur, this sets up as a possible short squeeze scenario, where longs and short-covering sellers will bid up prices in a "buy first, ask questions later" competition.

When an asset is hated by the consensus, it's a contrarian indicator that a bottom reversal is imminent--much like when an asset is universally loved, the bursting of the bubble looms.  Anybody remember the 1999 internet bubble or the subprime real estate bubble in 2006--when everybody and their brothers were pounding the table on NASDAQ stocks and flipping properties, respectively?  How did that turn out?  That's because the wrong people were giving the wrong advice at exactly the wrong time.  The consensus was that you couldn't lose following what everybody else was already doing.  Oops...

With gold and silver, it's hated by 99% of the population right now, pundits and laymen alike.  To a contrarian, it's a dream set up for a huge short-covering rally.  It's a lonely trade, but it's the right one--because it is lonely.

http://www.gotgoldreport.com/2013/05/huge-rally-fuel-in-place-for-gold-futures.html