“Prices still need to break north of $1000/oz to catalyze the next large-scale buying program, but considering the massive net short position held by discretionary traders, we estimate substantial scope for subsequent buying in the current set-up. In fact, there are already signs that discretionary shorts are under pressure, in stark contrast to previous set-ups where this cohort held a large margin of safety in the form of paper profits to withstand an attempted squeeze.”
“This time around, recent swings in their positions have completely eroded their margin of safety. We estimate the aggregate entry price for discretionary shorts since May 2023 at only $1010/oz, but more recent shorts are worse-off. For those entering since May 2024, we calculate a weighted-average entry price of $940/oz. For those engaging in the latest round of short-acquisitions since July — only $915/oz.”
“Discretionary shorts are not only vulnerable, but are now underwater. This set-up could lead to explosive price action, given the critically low stockpile in CME vaults relative to the open interest in paper markets.”
