Weekend Gold Forecast - Sunday, January 31

An epic battle between institutional and retail investors is unfolding in the shares of GameStop (GME). Prices finish the week 400% higher and are up over 1600% in January. Robinhood and Reddit advocates are exploiting a massive short position in the stock. The pressure is building and will likely continue into next week.

It’s unclear how this story will end. Currently, the outstanding short position in GME is approximately 61-million shares. Here’s the problem…there are only 50-million shares available for trading. The SEC is negligent for allowing short positions to exceed 138% of available shares. Robinhooders banded together and took advantage of this vulnerability.

On Thursday, Robinhood announced trading restrictions and limited buying on GME. On Friday, they expanded the list of “restricted stocks” to over 50, all with sizable short positions. If they continue to push these constraints, they will lose customers, which could bankrupt the company. Before the weekend, they tapped into a $1 billion line of credit.

The Reddit crowd is exploiting notorious market manipulators and short-sellers, beating them at their own game. Some speculate they will turn to silver next and perhaps mining stocks.

Losses are mounting, and this could spiral into contagion if margin calls lead to more selling. A sharp selloff is possible if the route in GameStop continues.

Whatever happens, the sea of liquidity will continue to look for the next “big opportunity.” In my opinion, it’s just a matter of time before they turn to precious metals.

The gold cycle indicator finished at 45, and this remains a good long-term buying opportunity.

-GOLD- Gold rallied Thursday and Friday in early trading only to be beaten lower by institutional investors after the New York open. Prices need to close above $1875 to support a breakout. The longer-term picture remains incredibly bullish, but the near-term trend is vulnerable to more downside on a close below $1820. If prices do decline, it would be temporary.

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Disclosure: None.

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