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Short Squeeze for Gold?


Low for decline may have already been set.

Despite yesterday's decline in the gold price, Gold ETFs' (GLD) gold holdings rose a third of a tonne to just over 1029 tonnes and another new all-time high.

Click here to enlarge.

Yesterday, COMEX open interest rose by a touch again on Wednesday -- to 373,339 contracts -- despite the sharp decline in the gold price. Which suggests once again that the decline was primarily the result of more heavy short selling by gold bears - and not bulls closing out longs.

Click here to enlarge.

In fact, if we look at the rate of growth in the shares outstanding of the 2x short gold ETFs (DZZ and GLL), you can see the rapid increase in the rate of new shorts that's occurred in just these 2 ETFs over the past couple of weeks.

Both of these ETFs get their 2x short exposure to gold by shorting the metal in the futures market.

Click to enlarge

Click here to enlarge.

Given that the GLD ETF hasn't sold an ounce during this decline (and actually added a little yesterday), this is the setup for a huge short squeeze wherever this 4-day decline in gold terminates. Yesterday's dip back to what was the October high and the ensuing reversal to end on the highs may just have signaled we've hammered out a low for this decline.
Positions in gold and gold stocks

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