European Politics Have Created a Golden Opportunity
Buy Gold Friday; Sell on Monday
European politics have created a unique trading opportunity in gold.
But to take advantage, you need to act now because everything goes down in three days!
Let me explain...
You probably know France will hold its final presidential election on Sunday. The candidates are former investment banker Emmanuel Macron and far-right populist Marine Le Pen.
But the mainstream media is downplaying the fact that this election will do nothing less than determine the future of France's participation in the European Union... and very possibly the future of the euro and entire EU at large. Its importance truly can't be overstated. Le Pen has promised a "Frexit" referendum within six months of winning the presidential election.
Now, French polls currently show a 60/40 public favor for the mostly pro-EU Macron. And the large European financial institutions are betting on these polls by going long on the euro and shorting gold on an incredible level.
Last Friday's Commitment of Traders (COT) report showed the largest commercial short position on gold since November (following the U.S. election). Here it is:
There's little doubt these short positions are responsible for recently pushing down gold prices. But here's what's going to happen...
Immediately following the results of the French election, we can expect these short positions to be covered and the downward pressure on gold prices to be released.
In short, it doesn't matter who wins the French presidential election. The price of gold will increase after it's over simply because all that short pressure is released.
If Macron wins, gold goes up as the short pressure is released after covering. If Le Pen wins, gold goes up even more after the short pressure release, the overall shock for the unexpected win, and immediately reignited fears of an EU breakup and euro collapse.
We've seen this kind of build-up in gold shorts, followed by sudden covering and a subsequent rise in prices, nearly becoming a standard ahead of U.S. interest rate hikes.
Since the Federal Reserve began raising interest rates in 2015, we've seen significant increases in short positions and falling gold prices ahead of FOMC meetings with high probabilities of rate hikes. Then, immediately following the adjustment announcement, we've watched the short positions get covered and gold prices subsequently rise.
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Total short positions on gold sat at 421,698 ahead of the Fed's rate hike in March. A week later, the COT report showed a +5% drop in total gold short to 399,799. Meanwhile, gold prices immediately popped nearly 2% higher and charged forward.
In the same way, I expect the short positions held by large European institutions ahead of the French election on Sunday will be covered, allowing the short pressure to be released and gold prices to rise immediately following the results.
Long story short, I think we're looking at a very easy gold trade: buy gold tomorrow, and sell on Monday.
Again, it doesn't matter who wins the French election. The short pressure on gold will be released once the results are final.
In the most recent issue of my Secret Stock Files advisory service, I alerted subscribers to this trade yesterday and gave several different options on exactly how to best leverage this opportunity. But I wanted to share this particular opportunity with Energy and Capital subscribers as well because it's the low-hanging fruit.
This is a very obvious trading opportunity that only comes around every so often. But members of Secret Stock Files are used to these kinds of trades. That's because I monitor changes in open positions, global interest rates, lease rates, and physical demand, among other dynamics, to find opportunities just like this. And then I show subscribers the best way to leverage the trade.
Even though it may be a little too late right now to learn exactly how to take advantage of short covering on Sunday night, there are many other less obvious opportunities we trade on and profit from just like this. Learn how to become a member today.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
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