How to trade the gold bounce: Pro

Monday, 22 Jul 2013 | 9:55 AM ET
An employee returns a box of One kilogram gold bars to the safe, from Swiss manufacture Argor Hebaeus SA.
Akos Stiller | Bloomberg | Getty Images
An employee returns a box of One kilogram gold bars to the safe, from Swiss manufacture Argor Hebaeus SA.

Gold is rising Monday, as weak shorts cover above $1,300.

After closing on Friday with its second weekly gain in a row, gold was able to begin this week with a bounce, running stops above $1,300 and trading up to the next major resistance with a high of $1,322.90. This high is against the initial April 16 low of $1,323, which is a major retracement level.

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With Fed Chairman Ben Bernanke emphasizing again last week that it is too early to make a call on curtailing the Fed's bond purchasing program, investors were able to turn to gold and find value below $1,300. Additionally, as oil costs rise, inflation—which has not been an issue this year—is showing signs of picking up. This sparks an interest in gold as an inflation hedge.

(Read more: Bernanke doesn't understand gold, should we?)

With that said, only a close above $1,323 to $1,326 will help neutralize the metal's bear market. Support will now be seen at $1,297 to $1,300, and if the market does not close above here, the current move higher will be seen as a failure.

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

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