Gold May be About to Break Out, Here's Why

Gold could be about to soar after recent heavy downward pressure, based upon the probability the huge number of shorts will be forced to cover their positions, resulting in a huge, upward move in the yellow metal.

Gene Arensberg, editor of the Got Gold Report, noted this in an email:

“The producer merchants, the category that includes the natural hedgers, are at their lowest net short position since 2008 at the same time that the managed money traders, the funds, are record short and at their lowest net long position since Nov. 18, 2008.

“I have not seen the COT ‘rubber bands’ so over-stretched in opposite directions as they are now,” Arensberg said, noting that extreme lows for the managed money net long positions are “usually associated with important bottoms for the price of gold.”

Arensberg added that together, funds have slashed their long gold positions by almost 36 percent to a 42,810 contract net long position.

It is also thought the short position is much larger because this data only represents Tuesday of last week.

Gold for April delivery settled Monday at $1,586.60 an ounce  on the Comex division of the New York Mercantile Exchange, up $13.80, or 0.9%. That's the largest one-day move for gold futures in February.