28 April 2006

Short Squeeze

Kitco Commentaries - Dr. Richard S. Appel: "April 23, 2006 – A series of disparate events have coalesced that have set the stage for generational price spikes in not one, not two, but in three major metals. For those who have steadfastly held their gold and silver positions through the difficult, trying and heart-wrenching past five plus years, it appears that our foresight and suffering will soon be rewarded. Similarly, for those who early recognized the explosive potential of the copper market, they too are participants in what I believe will be viewed as an historic short squeeze.
For new investors to the stock and commodity markets, a speculator who believes that an item will go down in price has the ability to sell it without owning it. This is called shorting a market. If he is correct he will profit by the difference between where he initiated his “short”, and the price when he “covered” or closed out his position. A short squeeze begins when a number of individuals or entities have “shorted” a market in a substantial fashion, and find themselves on the wrong side of the trade. In their haste to purchase the item and exit their trades, they literally fall over one another and markedly drive higher its price.
A good example occurred in the silver market between late1979 and early 1980. Prior to the summer of 1979, Bunker and Herbert Hunt of the Hunt oil family, accumulated an enormous silver position. As I recall, it was largely completed by the summer of 1979, when silver was under about $8 an ounce. Prior to and during this period many commercial interests, traders, and speculators shorted a huge number of silver future contracts as it rose in price. They believed there was sufficient readily available physical silver to offset their positions. If they were correct they would pocket the difference w"

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