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Gold’s Level of Truth

Gunay Mutlu | E+ | Getty Images

Gold is enjoying a corrective bounce—but investors shouldn't get too excited yet.

Bullion showed signs of life in the second half of the session on Friday, and recovered from its lows to trade above resistance and close at $1,223.70.

On Monday, gold reached a high of $1,247.40, and is trading at roughly $1,240. We believe this to be short covering into the end of the month and the end of the quarter, as investors lock in profits from this bear market.

(Read More: Three Reasons Gold Will Go to $800: RBC Strategist)

We still believe that only a close above $1,254.30 will signal a consolidation higher. Furthermore, a close above $1,275 will be needed to signal a slight reversal, and a likely trade up to $1,323.

We continue to eye $1,242.60 and just above as resistance, as that's where the market recovered for a short period of time after Wednesday's GDP data.

Monday's close will be important, and if we close below $1,242.60, you can expect to see the market continue lower.

(Read More: Buy Apple, Short Gold: Market Pro)

Rich Ilczyszyn is founder and CEO of iiTrader. Follow him on Twitter: @iiTrader.

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