(Kitco News) - August Comex gold futures are higher for the third session in a row Tuesday, as the yellow metal continues its base-building action following the nearly two and one-half months of decline.
The gold market is bouncing from major multi-month technical chart support in the $1,537-$1,529 per ounce zone. That support zone represents the December 2011 low and the mid-May low. The market's rebound from that area is encouraging to the bulls.
Paul Hare, executive vice president at the Linn Group in Chicago, said "it's trying to base out. It's holding the December lows and that is the key to the gold market. It does appear that it is trying to stabilize after the recent sell-off."
Looking at daily momentum indicators, the 9-day relative strength index has turned higher from oversold levels, which is a traditional "buy" signal on that tool. The 9-day RSI is currently at 46% and pointing higher. Any reading under 30% is considered "oversold."
Hare was bullish on the gold market short-term. "Near term, we should see a rally in gold towards the $1,650 level," he said.
His advice for gold players? "Trade it. Buy breaks and sell it out again near the $1,650 area."
Looking at the moving average picture, the 20-day moving average remains above the market at $1,594.80. The August gold contract has climbed above the 10-day moving average, which is currently at $1,569.80. Technical traders will want to monitor the 10- and 20-day moving averages closely near term. In order to confirm a moving average crossover buy signal, the 10-day moving average would need to climb above the 20-day moving average.
Additionally, on a potentially bearish note, technical traders should monitor a potential triangle formation that could be developing on the daily chart. Triangles are traditionally continuation patterns, and the recent trend off the late February high has been bearish.
A triangle forms with four points on a chart. The gold market has already etched those points at the May 16 low, the May 21 high, and the May 23 low. The May 29 high could be the fourth point.
Traders draw two trendlines off the highs and lows and a "triangle" can be seen. However, in order to actually confirm the bearish potential of that formation, a decline under the lower trendline at $1,539.90 would be needed.
Shifting over to the July silver futures chart, a type of rising "wedge" pattern is developing on the daily chart. It has not been confirmed, but the pattern does have bearish forecasting potential. Key wedge support lies at $27.22. That is important near-term support. Declines under that level would be bearish and would confirm a downside breakout.