Gold futures went significantly higher today. COMEX Gold for December delivery gained 0.90%, or $10, to settle at $1,104.10. The high of the day was set at $1,108.50.
Reuters writes that Dennis Lockhart, Atlanta’s Federal Reserve President, said a Fed decision to raise interest rates should come soon, “but his prepared speech did not repeat recent comments in which he said he was ready to vote for a rate hike next month.”
Mainstream media keeps on reiterating that gold prices have fallen with the prospect of rising rates. The rationale is that the opportunity cost of holding bullion would rise with an interest rate hike.
Today’s gold price, however, could already be pricing an interest rate hike. The key question is whether gold did not sell off too hard driven by (too) bearish market sentiment.
If anything, gold rose today as a result of a short squeeze. Looking at the positions of traders at COMEX gold, it appears that commercial traders are holding the lowest net short position in gold in history, see blue bars in the center pane of the chart below. Chart courtesy: Sharelynx.
We believe that the current COMEX setup will lead to a meaningful rally in gold in the short term.