Gold prices are seeing a good bounce today as stocks are showing some weakness. The yellow metal has retaken the psychologically important $1200 level today as some buyers enter the market and some short covering takes place. The gold market is about $24 dollars per ounce off of its overnight low. Gold is currently flirting with a very important technical level that if breached could potentially see gold prices begin another significant leg lower. The next few sessions will likely be very telling as the gold bulls attempt to hold the range bottom. Sentiment in the gold market has reached very bearish levels, and such an extreme level of bearishness could potentially fuel a large short covering rally in the yellow metal as selling pressure subsides.

Of some potential importance, the commitment of traders report recently showed that large speculator positions in gold had reached the lowest levels since December. This may prove to be important because when the large spec position reached this level back in December, gold then proceeded to put in a double bottom and rebound. Will this be the case again? It’s hard to say although it does seem that the selling pressure may be weakening as there simply is not as many people left to sell….

This week, gold will have plenty to chew on although the economic calendar is on the lighter side. There will be several Fed officials speaking this week. In addition, markets will be paying close attention to the FOMC meeting minutes set to be released on Wednesday. This release will likely be the data highlight of the week. Following last week’s solid non-farm payrolls report, investors will be looking for clues as to when the Fed may begin the tightening cycle. There are still many who believe the first rate hike will come in the middle of next year, while others believe that the first rate hike is likely some time off-and in fact that the Fed may be forced to provide even more stimulus.

Investors will also continue to watch the currency markets closely. The dollar index is at multi-year highs but at this point may be in overbought territory. This recent dollar strength has likely been a formidable barrier to higher gold prices and may continue to act as such. Should the dollar start to pullback or show some signs of weakness, however, it could provide more incentive for bargain hunters in gold. In other outside markets, crude oil is also not doing gold any favors as the price of oil continues to drop.