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Gold is starting 2014 on a high note, rising 4 percent after finishing off the worst year since 1981. And with bullion now trading at two-month highs, traders say a short squeeze could be imminent.
"In a heavily shorted market, you'll get to a level where people can no longer stand the pain, and then everybody rushes to the exit at once, causing the move to feed off of itself," said Jim Iuorio of TJM Institutional Services.
According to the Jan. 14 Commitments of Traders report from the Commodity Futures Trading Commission, short bets on gold rose by 2.9 during the previous seven days, adding to the already-sizable short positioning in the market.
Being short gold in 2013 was a phenomenal trade, as the metal fell nearly 30 percent. But at this point, gold bears may be overplaying their hand.
"There are a significant people out there who really believe the gold price should be much lower, and you have a record amount of shorts in the market" said Mihir Dange, a gold options trader with Grafite Capital. "But usually record shorts and a rally should lead to some sort of squeeze somewhere."
Natural gas has screamed higher this week, as cold weather has led the commodity to rise over 10 percent in three trading sessions, bringing it to the highest level since June 2011. And some energy traders say there's still more room to the upside.
"This is a classic supply-and-demand move," said Anthony Grisanti of GRZ Energy. "All the cold has boosted demand, but we're about 15 percent below last year's supply at this time. So I still expect these prices to rise because I expect the cold to continue through the rest of the month."
A weekly inventory report released on Thursday showed a 107 billion cubic foot withdrawal, about in line with market expectations. Still, inventories are still far below the five-year average for this time of year.
"Yes, we're going to have cold weather—but at the same time, we're going to have to replenish the inventories," Jeff Kilburg of KKM Financial said Thursday on CNBC's "Futures Now." "So I think there's going to be demand for longer, and therefore, natural gas will stay elevated."
Peter Schiff has a warning for gold investors: Don't fear the Fed.
"Gold has already priced in whatever taper is coming," Schiff, CEO and chief global strategist of Euro Pacific Capital, told CNBC. "If anything, it has overpriced it."
Gold is slightly lower Tuesday on the heels of a stronger dollar and a report from Jon Hilsenrath of The Wall Street Journal suggesting that the Fed will continue to reduce—or taper—its bond-purchasing program when it meets next week. The prospect of a Fed exit has terrified gold bugs and led to bullion's worst annual performance in 2013 since the end of the Clinton administration.
But those fears are misplaced, according to Schiff. As he sees it, the Fed has no viable exit strategy, and once the market realizes that, gold could become the hottest trade of the year.
"If the Fed starts tapering, the whole economy will tank," Schiff said on "Futures Now." "Stocks will suffer, the dollar will collapse, and all the Fed's stimulative programs ... since 2008 will have been for nothing. That's why they have to keep printing money. They can't stop. And eventually, that will make gold a very attractive investment."
In other words, the Fed is trapped in a vicious cycle of easy money, unable to fully revive the economy yet hesitant to end the very programs that it hoped would do just that.
Of course, Schiff has made similar claims in the past two years, none of which have worked out particularly well. And he remains noncommittal about the exact timing of gold's possible accent.
But gold remains his top investment choice, Schiff said, adding, "It's a no-brainer."
Gold has enjoyed a strong start to 2014, rising more than 2 percent in the first few weeks of the year. And after closing out the worst year since 1981, gold should continue to stage a mild rebound throughout the rest of the year, some traders and analysts say.
"I'd be careful to say just because one year's bad, the next year's good," said Michael Dudas, precious metals and mining analyst at Sterne Agee. But "the liquidation out of ETFs and out of the hedge funds in gold in 2013—I can't see that happening again given global fundamentals where we are today. … There's a lot more positive than negative to support gold in 2014."
(Read more: Gold poised to snap 3-week rally on economic outlook)
Dudas believes the cost of production for gold and Asian physical demand present encouraging signs, but argues that "the real catalyst this year for a significant move in gold is that we get any monetary velocity back into the marketplace, which we have not really seen since the crash of 2008. I think that fundamentally, that could be the big ticket."
In addition, the fact that gold has outperformed equities thus far doesn't hurt.
In gold, "the sentiment has been so awful, so bad," and yet "the fact that the equities don't seem like they're off to a 30-percent-up 2014 has really had gold holding here pretty nicely. So I do think we could grind higher from such poor sentiment levels," Dudas said Thursday on CNBC's "Futures Now."
(Read more: Byron Wien: 10 percent correction looms–here's why)
As tech underperformed in 2013, hedge funds shied away, favoring sectors such as health care and financials. But that trade could be turning around in 2014.
"Overall hedge fund tech exposure, as measured by long/short ratio, is the lowest it has been since January 2009, and by a lot," said David Seaburg, head of equity sales trading at Cowen & Co. "I think we will start to see money rotating out of health care into tech, which is something we have not seen."
In 2013, the information technology sector underperformed the S&P 500 by more than 3.4 percent, while consumer discretionary and health care were the top performers.
Over the first few weeks of 2014, it's been a different story. Technology is outperforming the market by nearly a full percentage point. And out of the 10 S&P sectors, information technology is one of only three in the green (although it is joined there by 2013 darlings health care and financials).
Hedge fund exposure to technology is far surpassed by exposure to consumer discretionary, financials and energy, Seaburg said.
"That could be an indication that they're underweighted," Seaburg said. As profit-taking potentially ensues in industries like biotech, which rose nearly 75 percent in 2013, "money could peel out of high-flying names and find a home in some of the underappreciated tech names," such as Cisco, Intel and Apple.
(Read more: Hedge funds lose out to stellar stock markets)
Is it time to love one of the market's most hated asset classes? As the economy improves, fixed income experts are advising investors to exit shorter-term Treasurys and move into the much–maligned long bonds.
"The best value in the fixed income market right now is precisely where people have been leaving, and that's the long end of the yield curve," said Jeff Rosenberg, BlackRock's chief investment strategist for fixed income. "What people have wrong is they think that the front end of the yield curve is a safe place to hide out. But if the economy does what most people expect, this is the riskiest part of the fixed income market."
Given that they are supported by the stimulative actions of the Federal Reserve, shorter Treasurys could be in for a rough ride if the economy grows as expected.
"If we are moving to a more self-sustaining recovery, the risk in bond markets always shifts down the curve," George Goncalves, the head of U.S. rates strategy at Nomura, wrote to CNBC.com. "This is especially pertinent given that long-term rates have largely adjusted already over the course of 2013."
(Read more: US Treasurys move lower following Wall Street rally)
The Fed has reiterated that even as it tapers its bond purchases, it will not look to increase the key federal funds rate until 2015. But the market may lose confidence that the Fed will wait that long, argues David Robin, co-head of financial futures and options at Newedge.
Byron Wien, one of the most respected voices on the market, has a bullish outlook for 2014 but sees the rally taking a serious breather as euphoria turns to disappointment.
"What's going to cause it is that everybody's on one side of the boat here," said Wien, vice chairman at Blackstone Advisory Partners. "Almost everybody's made good money—maybe not 30 percent last year—but everybody was up ... and people are generally feeling pretty positive. There's almost a euphoric mood."
Wien said it won't take much to turn this manic high into a manic low.
(Read more: Why earnings might actually start to mean something)
"When investor sentiment is as positive as this, [the market is] usually vulnerable to any kind of a disappointment," he said. "There could be some earnings disappointment in the fourth quarter. And the geopolitical situation is still, in my mind, pretty unsettled. So you never know what it's going to be. But you do know that when sentiment is euphoric, the market is vulnerable."
The fire hose of earning reports gets turned on this week, with fourth quarter reports coming from six Dow components and 26 S&P 500 companies. And with the Federal Reserve looking to take a less active role in 2014, the results could start to matter much more to stock prices than they did over the course of 2013.
"Last week was noteworthy in the markets' response to earnings, in the context of a potentially less friendly Fed, which will lower the tolerance level for any hiccups in company performance," Lindsey Group chief market analyst Peter Boockvar wrote in a Monday note. "Those that missed were punished, such as Bed Bath & Beyond and Alcoa, but those that delivered were rewarded, such asMicron and Macy's. That seems perfectly logical, but we know misses in 2013 were mostly glossed over."
(Read more: US stocks little changed with earnings in view)
Investors are eagerly awaiting Friday's jobs report, which will shed light on how many Americans were hired in the month of December. And while most economists expect the unemployment rate to stay put at 7 percent, Societe Generale's chief U.S. economist, Aneta Markowska, expects the unemployment rate to drop below 7 percent for the first time since November 2008.
Markowska expects to see 225,000 on the nonfarm payrolls number, "but I think the interesting story will be the unemployment rate. We're looking for a 6-handle—6.9—so quite an important milestone," Markowska said on Thursday's episode of "Futures Now."
(Read more: Jobs report could show things are looking up)
The economist sees the unemployment rate continuing to drop throughout the year, which could pose a policy issue for the Federal Reserve.
As recently as in its December statement, the Federal Open Market Committee "reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to ¼ percent will be appropriate at least as long as the unemployment rate remains above 6½ percent."
Coffee futures have risen some 20 cents per pound since early November—a 19 percent rise that nearly puts the commodity in technical bull market territory. But that doesn't mean the price of your morning latte is about to skyrocket.
First of all, November's $1.01 marked a seven-year low for coffee futures. Coffee has been under pressure due to high levels of production out of the world's largest coffee grower, Brazil. But supply is expected to be lower in 2014, particularly due to recent inclement weather.
December 2013 was "an extremely wet month" for many parts of Brazil, the NASA Earth Observatory reported. And rain can damage coffee plants, reducing output and consequently boosting price.
"We have seen quite a turbulent move to the upside, and that's because of some forecast changes," said futures trader Jeff Kilburg of KKM Financial.
"We saw forecaster Volcafe tone down their optimistic estimates. A lot of folks have been thinking about 60 million bags [of supply], but what we saw in December down in Brazil is a substantial amount of rain, potentially damaging the product. Therefore we are seeing the forecast drop down to 51 million bags, and that really put a sense of urgency into folks coming in and buying it."
At this point, short-term price action is expected to depend on expectations of 2014 supply. But the broader story behind the long decline in prices—which have dropped from $3 in mid-2011—is that producers are finally growing enough coffee to match demand.
"Demand for coffee has expanded dramatically for four or five years, and it's taken a while for global supply to catch up," explained Jonathan Feeney, food and beverage analyst at Janney Montgomery Scott. "Well, now it has."
Feeney pins the increase in demand on the growing middle classes in emerging markets as well as on consumption in the U.S. that continues to increase. But even as the price has plunged over the past three years, consumers have rarely seen lower prices.
(Read more: Starbucks makes its latte cheaper—and more mobile)
"Consumer prices have underpaced the drop, which is of course a boon to companies like J.M. Smucker that produce coffee," Feeney said.
Still, a lot goes into the price of a cup of coffee, or a bag of roasted coffee, besides the beans themselves. That's why coffee that trades on the futures market for $1.20 per pound is sold in Starbucks for $12 per pound, or by specialty coffee roasters like Blue Bottle for as much as $26 per pound.
"What you're paying for is the brand, the quality of the roasting and the selection of the beans," Feeney explained. "There's also a pretty healthy profit margin."
(Read more: Woman eats only Starbucks items for a year)
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