Bears Around the Corner

The bears appear to be moving in. Eager to retain their stranglehold on bullion, they are now placing gold in a very vulnerable position.

Though gold posted its biggest rally since October on Monday, with spot gold trading at $1,105.13, up 2.25%, traders maintained that prices continued to trade sideways above support near $1,080. Goldbugs have been advised to keep a close eye on $1,075.

On Monday, the Canadian stock market also received a lift from upbeat economic reports from the United States, China and Europe.

Analysts maintained that upbeat manufacturing data for the euro zone helped lift the euro and pressure the dollar. And a strong report from China failed to fuel recent fears that Beijing might further tighten lending to cool its growth.

Traders noted that as long as global interest rates stay near historic lows and boost the available supply of money in the financial system, gold would continue to receive support.

According to a study by the World Gold Council, "roughly 29% of the movement in the price of gold is attributable to money supply."

But in Tokyo, gold prices softened a touch on Tuesday morning, still hovering near $1,105/oz. after posting their biggest daily gain in three months in the previous session boosted by an oil rally and dollar weakness.

Much remains uncertain as the market continues to digest the many economic parameters tracking global demand.

Had it not been for the healthy appetite from physical buyers on Monday, gold would have slid below its solid support.

Gold futures rose Monday as some participants re-entered the market in search of bargains after the metal lost ground for the past two months.

Although gold is traditionally seen as a safe haven in turbulent times, it has been behaving much like other assets recently. It stumbles even with a slight sell-off in financial markets.