The Oversold Gold Market Creates An Asymmetric Opportunity With This Strategy

 

Over the last couple of weeks, I’ve written about the ongoing transition from a global trade war into a currency war.

 

This year so far, we’ve seen the Argentine Peso, the Thai Baht, and Turkish Lira get decimated. But it’s not just Emerging Markets with ‘soft’ currencies being affected.

 

The Australian Dollar’s also performing very poorly – same with the Canadian dollar.

This shows you just how fragile the world’s currencies are when there’s a currency war – no one’s safe.

 

And unintended consequences spread like flames of a fire. . .

 

I wrote earlier this week that over the last two decades – gold’s never been shorted like this before.

 

Take a look yourself. . .

Gold’s down over 11% since 2018 began – thanks to heavy short sellers and a rallying U.S dollar.

But remember this important phrase: when something has record shorts, it will have record buybacks.

 

For instance, when someone shorts something – they’re borrowing it.

 

The idea here is that traders are borrowing someone elses gold contracts – paying them a bit of interest for their time – and then selling the gold on the open market.

 

Then – if gold falls in price – they have to simply ‘buy it back’ at the cheaper price and return it to the original owner. And the trader nets the difference as a profit.

 

That’s how short sellers make their money.

 

You can see here then that eventually – all this record gold shorting will turn into record gold buying. Traders must buy it all back to return it.