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James Hyerczyk
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Comex Gold

Gold futures are trading sharply higher during Monday’s holiday-thinned trading session in New York. Traders have not been able to pinpoint one particular reason for the surge in prices, but most agree it is probably related to the absence of a stopper in the market, or a major player that had been keeping a lid on prices for the past five weeks.

At 12:08 GMT, February Comex gold is trading $1487.10, up $6.10 or +0.42%.

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Traders are also asking if the rally represents real buying or just computer generated algorithms gunning for stop loss orders.

No significant resistance has been taken out yet and the market is merely testing the upper end of its two-week trading range. Nonetheless, there is the possibility prices could break out over the most recent minor top at $1491.60 and a key 50% level at $1495.30.

Taking out these levels could trigger buy stops that could send prices even higher, but then traders who missed the move will have to decide whether to chase the market higher, given the thin volume, or fade the move. Chasing could be a dangerous play since this type of move under these trading conditions often lead to the formation of a bull trap.

Is China the Big Buyer Today?

China, the world’s top bullion producer and consumer, launched its first gold options contract on the Shanghai Futures Exchange on Friday.

We’ve been saying for weeks that the chart pattern is indicative of accumulation. Perhaps Chinese traders have been loading up for weeks just waiting for the free world to leave for the Christmas holiday so they could launch a rally.

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Is India Back in the Game?

CNBC is reporting that gold demand was subdued in major Asian hugs last week, with India in the midst of protests against a new citizenship law that disrupted some retail buying and traders elsewhere banking on the Chinese New Year for an uptick in sales.

More Support for Accumulation Theory

Perhaps indicative of developing bullish sentiment toward bullion, holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.3% to 885.93 tonnes on Friday.

Additionally, according to data from the U.S. Commodity Futures Trading Commission (CFTC), speculators increased their bullish positions in COMEX gold and silver contracts in the week to December 17.

Daily Forecast

If you’re a technical momentum traders who focuses only on price behavior and ignores volume then you like today’s rally and are anticipating a breakout to the upside.

If you’re a trader who wants to know the reason for a move then you may be a little skeptical because of the thin-holiday volume. You’re probably asking yourself if this is a real move, or just a rogue trader or computer algorithm creating the illusion of buying. If that’s the case, you’re thinking about fading the move.

Personally, I suspect China is behind the rally for investment purposes. I also suspect there is a little hedge buying going on as protection against a break in the overbought stock market. I don’t, however, see any evidence of aggressive safe-haven buying since the Japanese Yen and Treasury markets remain relatively calm.

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