Here Come the Gold Naysayers Again

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Published : October 29th, 2012
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Category : Market Analysis





With gold prices down a little again, the same old parade of naysayers will make one more round of financial news appearances and articles. Instead of having a war of words, perhaps the best way to measure who has been right is the record of the short sellers so far over the past few years.

As a result, we updated one of our charts that recently appeared in The Casey Report. It shows two things: the price of the GDX (the gold miners ETF); and the short interest on GDX as a percentage of shares outstanding.

As the chart shows, every time the short interest rises, the gold miners keep rising. In fact, the short interest has only been right once in the last five years in predicting the market's next direction. Right before the fall 2008 crash, the short sellers got it right. But besides that, they've been dead wrong.

What's ironic is that even when they give up on their positions, they still get it wrong. For example, look at 2011 on the chart. As the short interest makes an enormous drop, the gold miners start to fall. In fact, the low point for GDX was just about the low point for the short interest. It's really amazing. Regardless of the direction, the short sellers just can't get it right.

Recently, they've been striking out again. The short interest has finally started to climb, only to see the gold miners climbing higher with it. If you want to side with the gold naysayers, go ahead. Just be aware of their record thus far – it isn't pretty.



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Vedran Vuk graduated with a BBA in Economics from Loyola University of New Orleans. Currently, he is pursuing a M.S. in Finance at Johns Hopkins University. He also spent time on a PhD. Economics program. His publications include academic journal articles, book chapter contributions, newspaper columns, and online articles. Prior to Casey Research, he worked in think tanks, government affairs, and corporate governance. Utilizing his experiences with academics, Washington politics, and financial knowledge, Vedran’s analysis often seeks to find the mid-point between these different areas.
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