Monday Morning Gold

Here are two charts of gold. First, let's look at the daily chart

Gold is bouncing nicely this morning. Here are some reasons why…

#1) is Price support from June and July

#2) is the 50-day moving average. Follow that green line along and you’ll see that gold came down to test it on Friday and is bouncing higher off of it today

#3) is the bottom Bollinger Band. It would be likely for gold to bounce higher off of here.

#4) Is Stochastics, a measure of momentum. It is oversold and heading higher.

All these, taken together, should propel gold to at least the 20-day moving average at 635.50. But what happens there? Gold has broken its short-term uptrend? If you didn’t already buy gold’s bounce this morning, you might want to wait to see if it gets back on track or if it is just bouncing along sideways.

Now, let's look at the weekly chart of gold...

Looking at the weekly chart, we can see all kinds of support for gold

#1) is price support in the 574-576 area

#2) We can draw uptrends from here till the cows come home. 567-568 is one of them.

#3) Stochastics are bullish.

Fundamentally, there are three things the gold market must work through…

#1) Low volume – many traders and investors have been scared to the sidelines by gold’s volatility. Without higher volume, gold can’t go higher.

#2) Lack of buying by the big jewelry houses. This has been covered in the news lately. It’s worrisome. They may become big buyers at $600

#3) Potential China slowdown. Fears of this, along with China’s rate hike, sent gold and gold stocks lower on Friday. We’ll have to see how this plays out.

On the other hand, the big drivers that have propelled gold in the last two years – lack of new supply, growing investor demand, and more – are still in place.'

Bottom line: I'm bullish on gold, but after a bounce in the early part of this week, it may have some more consolidation to work through.

NOTE: One thing that could change this equation is if the US dollar falls out of bed. It is showing technical signals that MAY indicate it is going much lower. Naturally, since gold is priced in dollars, if the greenback goes lower, gold should go higher.

I'm more bullish on silver, for reasons I spelled out last week.

Check out my new gold and energy blog at MoneyAndMarkets.com