Gold put in some strong gains in today's session clearing its first overhead level of resistance in the process. Since the beginning of the month of March, it has not been able to clear $1585 - $1587 as it attracted selling on approaches to this region. Buying in today's session was strong enough to absorb the offers that emerged in a rather easy fashion which is a bit surprising to me considering the duration of this resistance zone. I would have expected shorts to put up a bit more of a fight up here. That they did not has to be rather disconcerting if you are a bear as it illustrates that they are wavering in their conviction of lower prices ahead.
I mentioned last week when I first put this chart up that the bears were being frustrated in their efforts to break the metal down below this strong buying zone noted. We are now seeing the signs of that frustration as the newcomers are starting to cover.
Now that the bulls have cleared that $1585 - $1587 level, it is essential that they prove their mettle if prices retreat back down towards this area. That will signal that the bulls have regained the short term initiative from the bears.
I would look for fiercer resistance at the next resistance zone where the "16" handle will emerge. Not only is that a psychological resistance level but it is also a technical one. If the gold bulls can take the price up and through this level and maintain the price ABOVE this level, we should see a run towards the late February peak up near $1620.
I want to again note here that gold put in another strong day in terms of the major currencies such as the Yen, Pound, Euro and Swiss Franc. It continues to display strength across a wide variety of currencies, which is always good for a bullish cause.
The other thing of note - the HUI regained its losses from late last week after it put in that huge upside reversal on Wednesday. It once again encountered selling pressure as the various stocks that comprise this index rose to their last week highs. This is showing up on the chart near the 360 level. I need to see this index CLEAR 372 and do it with authority to prove to me that this is indeed a lasting bottom in the mining sector. I am of the opinion that if it does this, the gold and silver charts will both show markets that are taking out their respective overhead resistance levels.
Remember, it has been the shares which are dragging on the metals; if those shares are done going lower as it appears that they are, then it is going to be difficult for the bears to beat the actual metals down any longer. Keep in mind that there is a very large, multi-year high, hedge fund short exposure in gold. That position will be vulnerable if the bulls can continue to peel off the weaker-handed shorts that have tagged along for the downside ride. There are significant stops above this market that if breached, will provide some nice upside fireworks.
As usual, the key will be whether the bullion banks emerge as sellers on any rallies. They have been using this downdraft to cover their previously built short positions and have reduced that significantly. Are they content to leave that as is or are they looking to rebuild it? We shall see. One thing is for certain however; those hedge fund computer algorithms are not going to ask any questions if the bulls can take out the overhead resistance levels that trigger the buy signals on those infernal machines of theirs. They will be buying back at the same speed that they have been selling for some time now.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
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