The price of gold – the gold coin is experiencing a renaissance again. Investors are chasing the price, and a short squeeze may be underway in gold futures

Quotations gold opened at the beginning of the week with an upward gap in response to information about a significant escalation of the conflict in the Middle East. By Friday afternoon, the price of the bullion in USD had increased by approximately 3,5%, which at this point is the largest weekly increase since March. Then the prices increased by over 6% in a week.

Gold market returns after falling to lowest levels since March

The gold market's turnaround comes this week after it previously fell to its lowest level since early March 2023. From the high in April to the low a week ago, the gold price retreated by more than 12%, which was the largest correction since the second quarter 2022

Potential short squeeze on gold

It is worth mentioning that when the price of gold fell, hedge funds increased their exposure to further declines in gold prices through futures contracts. According to data CFTC hedge funds had over 137 thousand short positions, which was their highest value since November 2022. This, in turn, may show that their exposure was disproportionately large to the previous price drop. As a consequence, we may now be experiencing, to some extent, a phenomenon called a short squeeze. Funds with short positions, as gold prices rise, are likely forced to close their positions by buying them back, which may push gold prices even higher.

Factors that may affect the price of gold

In addition to the geopolitical risk, which may support gold prices, there are also risks related to the impact of the conflict on inflation. Petroleum or natural gas prices have increased since the beginning of the week, and inflation in the US for September turned out to be higher than expected.

On the one hand, geopolitical risk, on the other hand, inflation, and on the third hand, a potential short squeeze, all this may currently affect gold in one direction.