As a result of the general liquidation and deleveraging at the time back in October, open interest collapsed as both longs and shorts began to exit the futures market, and the gold price soon followed to the downside in late October.

It wouldn’t be until December that COMEX open interest would begin rising again, as players eased back into the gold-futures market - even though the price of gold had already bottomed in November as a result of massive physical demand that briefly took gold into backwardation.

Unlike back in September though, gold is currently in an uptrend, and open interest is also in an uptrend. Therefore, should a similar short squeeze now occur (which I still expect it to), it would not only take the metal to new highs, but would no doubt see more follow-through buying of the new all-time high from new longs that would enter the futures (not to mention the obvious continued buying in the physical market from both the GLD ETF and other investors).

What does it mean? This is just more evidence that there has been a large buildup of shorts in the gold-futures market over the past 13 trading days since the recent peak. And despite this heavy short selling, the investors in the GLD ETF (which is just one large, concentrated example of physical investment demand for gold) continue to sit with 1029 tonnes of bullion, refusing to sell metal.

Price must eventually follow demand. And when these shorts that have been piling onto gold do begin to cover, it will.


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