Gold posted a powerful upside move during Friday's session following dovish comments by ECB President Mario Draghi and a weaker than expected US payrolls report:

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Gold (Hourly)


The rally stopped just shy of previous support near $1180 while printing a bullish reversal 'hammer' candlestick on the weekly chart:


The CFTC Commitments of Traders data which came out this afternoon showed yet another record small speculator net short interest in gold futures while large speculators suffered an absolute washout by reducing net long interest by more than 37,500 contracts (~$4.5 billion) within the span of one week:


Small speculators were net short nearly $1 billion worth of gold futures as of Tuesday's close (an all-time record) and commercials covered shorts last week at one of the fastest rates in history. This positioning adds some color to today's large upside move, especially after Wednesday's sell-off which likely only served to exacerbate speculators' short positioning in the gold market.

The stage is set for an important week ahead:

  • $1180 is now resistance with the 50% retracement of the October-November sell-off coming in at $1193
  • Confirmation higher of last week's bullish hammer candlestick will go a long way toward solidifying a bottom for gold (at least for the remainder of 2014)
  • A true short squeeze could easily bring price back up to test the falling 50-day moving average (currently at $1223) - a close above the 50-day SMA would indicate a bullish change of character for gold
  • Gold miners (GDX) posted their largest single session gain in more than 5 years today - the $20 area now becomes important resistance for GDX (roughly 7% above today's closing level)

Simply stated, weakness early next in gold and gold mining shares would be characteristic of the recent bear market after the huge gains witnessed today. However, should we get upside follow through over the coming days it would be an important indication that the character of the market is changing. I should add that there wasn't much fanfare surrounding today's large upside moves in gold and gold mining shares, this is the kind of despondency and general disinterest which often surrounds market bottoms.