• extremely negative sentiment in both the metal and mining shares
• outflows of GLD and GDX at extreme levels - signs of capitulation
• sector breadth extremely oversold
• price oscillators extremely oversold
• CEF moved into a discount to net asset value, which indicates being oversold
That is all well and good but those conditions can continue. So, we were anxiously awaiting the release of gold's Commitment of Traders report and we were not disappointed. As the large Commercial Trader's short exposure declined (bullish for gold), hedge funds added a large number of shorts (also bullish for gold). This is a sign that the recent decline moved the largest traders to a less bearish outlook for gold while speculators became more bearish. Although this data is not a perfect timing tool, the shift is very important and is the hallmark of bottoms. This allows the above list to gain traction."
The important part is the comment on the speculators growing their short positions while the large Commercials were doing the opposite by reducing their shorts. As far as I can tell, the Large Speculator have not been this short since late 2008, which happens to be the last serious low before doubling in price over the next few years.
It seems a little late to be getting extremely short.
Anyway, my point is that if you want a reason for gold to continue to move higher without a retest of the lows, short covering would be the one. I often write about emotions - how do you think those shorts are feeling today? Do you think they are still confident in a profitable decline OR are they hoping for a decline to get out of some or all of their positions before the gold market moves much higher?
Speaking of emotions, the Gold Public Opinion data was released:
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