The shorts are feeling the squeeze, but can the bounce in gold turn into a true rally?
Gold is trading higher this Monday morning, and above the important $1,424 to $1,428 level. In the morning session, it reached our next resistance point, when it hit a high of $1,437.40.
So why is gold getting bid up?
Actually, it's pretty simple. With Friday's price action providing a close above $1,400, investors and traders are using the more stable price action as an opportunity to hunt for value. With headwind resistance levels at $1,437.50, $1,447, and $1,455.80 to $1,458.5, the major upside target will ultimately be $1,474 to $1,478.
(Read More: Gold Rises as Buyers Swoop; Gains May Be Short-Lived)
Option expiration is this week, and many investors who protected long exposure by using put options or speculated short positions will be looking to close these options by buying futures or outright exiting the puts, which will help the market to bounce. This recovery, although strong this morning, is likely a consolidation rather than a reversal.
The bottom line: Look for a close above $1,455.80 to $1,458.5 to encourage more buying. A failure to close above $1,424 to $1,428 will be discouraging to the bull camp, and a new low on the session against $1,403.50 will be very bearish.