Key Macro Chart: Will Gold See a Massive Short Squeeze Rally? (2024/9/12)

Yen Positioning Reversal

What is shocking is that last week, the net long position of the yen reached about 45,000 contracts, the highest level in 3 and a half years. In contrast, in early August this year, speculative net short positions reached about 180,000 contracts, setting a record high for at least 20 years.

The last time such a dramatic reversal from short to long positions occurred was during the 2008 financial crisis. Since July, with the reduction of arbitrage trading, the yen has risen by 12% against the US dollar.

Correspondingly, USD/JPY has remained flat since the beginning of the year, with the current trading price at the lowest level since the first week of January. The volatility of the yen still exists, which also means that there are still opportunities for speculation.

Extreme Alert on Crude Oil

From a fund perspective, the current level of crude oil positions is at an extremely extreme level, reminding to pay attention to long opportunities. The net managed money positions for crude oil and refined oil products are at historical lows. Furthermore, from August 27 to September 3, managed money increased short positions in Brent crude oil by $2 billion, during which the oil price fell by 6%. For reference, in the past two years, cases where short positions increased by over $2 billion within a week did not exceed 10%. (Goldman Sachs)

The Shortest Bull Market?

Analysts: Without experiencing a recession beforehand, the average duration of a bull market is 33 months, which means the bull market for the S&P 500 index may last until May 2025. Under similar conditions, the average increase in a bull market is 63.6%, which would bring the S&P 500 index to 5852 points. However, it is worth noting that if this bull market ended in July, it would become one of the shortest bull markets in history, alongside the brief bull market of 2020-2022.

The chart below shows the low point to high point, increase, duration (months), and whether it occurred after a recession for the bull market cycles of the S&P 500 index from 1957 to present.

So the question is: Do you think the market will experience the shortest bull market in history for the second time in a row? Data shows that this would be the least likely outcome.

Gold

Analysts: As shown in the chart below, this is the 13th time that gold futures have tested the $2550 resistance level, with a large number of short positions accumulating to prevent a breakthrough. But in my opinion, **this will not prevent an upward breakthrough in the gold price, but rather serve as fuel for a significant short covering rally The short covering mentioned here involves not only individual investors, but also commercial longs and commercial shorts.

Also, don't forget about the long-term trend of gold. Real substantial profits require patience, and a true bull market for gold also takes time to brew. During this period, there will be pullbacks and anxiety-inducing sideways consolidations (like gold from April to August). The significance of these fluctuations lies in shaking off most traders in advance, causing them to miss the opportunity for the next round of uptrend.

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