Since breaking the downwards trend that had been going on since failing the 694$/oz resistance level early in May, gold has succeeded in correcting its seemingly undervaluated state. Gold has now gained 44.7$ or 7pct from a low of 638.8$/oz on June 27th. The aggressive move up proved to be a catalyst an-sich, as the velocity at which stop-loss levels and short covering were triggered, sped up the upwards momentum.
Besides that, much of the recent gains are characterized by an inflow increase, both in bullion ETF’s such as StreetTRACKS and by returning fund buying. This elevated liquidity bodes well for a move towards key resistance level 694$, a level which was failed several times earlier this year.
However, for gold on the short term, one should be aware of the indicators, which now point at a heavy overbought condition, possibly setting prices back into consolidation mode for some time, combined with extended profit taking.