In spite of the strong wave of selling that has swept across the entirety of the commodity complex in today's session, gold did rebound from its move below the psychological round number support level at $1600. If you note on the chart, the market continues to be essentially trapped within a very broad range that with a brief exception made in late December of last year, has held the metal for the last 7 months. That range is basically bounded on the top by $1800 and on the bottom by $1600.
Within that $200 range, there has been a tighter range for the last two months bounded on the top by $1680 with the floor of support down near $1600.
Gold is now testing the bottom of this range to see whether or not there is sufficient buying to keep it elevated and within its borders. Central Bank buying has been very active on any dips below the $1600 level in the recent past and I would expect this to continue. The key is whether or not speculative dishoarding of gold will be absorbed by these buyers. If the market pops from here and recaptures the floor in the region between $1620 - $1630, that will make evident that the buying is strong enough to offset the liquidation from the risk aversion trades.
If the market cannot get back above that level and falls through the floor at $1600, we should see very active large buying down towards $1550.
I would feel a bit more comfortable about the NEAR TERM prospects of the metal should it be able to reclaim the $1650 level.
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