The gold market came roaring back from early profit-taking selling pressure Tuesday, to close higher and nearer the session high. Bargain-hunting traders bought the early dip in gold prices, and fresh safe-haven buying interest entered the market on some more dour U.S. economic data. December Comex gold last traded up $4.80 an ounce at $1,233.30. Spot gold last traded up $5.60 an ounce at $1,232.00.

The U.S. dollar index sold off quickly Tuesday morning when it was reported that existing U.S. home sales dropped by a record amount for the month of July--down 27%, which was twice the drop analysts had expected. Gold immediately rallied on bargain buying and safe-haven buying as the greenback declined. The U.S. and European stock markets were lower Tuesday, and the U.S. Treasury futures markets soared to new contract highs, which underscored investors were moving to a risk-averse mode. That was also bullish for gold.

The U.S. dollar index did move well off its session low Tuesday, and the dollar index bulls still have some technical momentum on their side. The investor risk aversion is bullish for the U.S. dollar and for gold, and recent history shows that gold and the dollar can both rally at the same time when investors are seeking safe-haven assets. 

This week is the start of the festival season in India, and gold is a favorite gift given during the festival. That should keep physical demand for gold at a higher level in the near term.

The London P.M. fixing was $1,222.00 compared to the previous P.M. fixing of $1,226.00.

From an important technical perspective, December Comex gold futures prices closed nearer the session high Tuesday and scored a big and bullish "outside day" up on the daily bar chart. Gold market bulls have the near-term technical advantage. Prices are in a four-week-old uptrend on the daily bar chart. Bulls' next near-term upside technical objective is to produce a close above solid chart resistance at $1,250.00. Bears' next near-term downside price objective is closing prices below solid technical support at Tuesday's low of $1,211.70. First resistance is seen at Tuesday's high of $1,237.50 and then at last week's high of $1,239.50. Support is seen at Monday's low of $1,223.50 and then at $1,218.90. Wyckoff's Market Rating: 7.0.

December silver futures closed up 39.3 cents at $18.435 an ounce Tuesday. Prices closed nearer the session high and scored a big and bullish "outside day" up on the daily bar chart. A weaker U.S. dollar and the rebound in gold prices helped the silver market Tuesday. Silver had been under pressure early Tuesday and hit a fresh four-week low. Silver bulls again have the slight near-term technical advantage. The next downside price objective for the bears is closing prices below solid technical support at Tuesday's low of $17.785. Bulls' next upside price objective is closing prices above solid technical resistance at the August high of $18.75 an ounce. First resistance is seen at Tuesday's high of $18.52 and then at $18.75. Next support is seen at $18.25 and then at $18.00. Wyckoff's Market Rating: 5.5.

By Jim Wyckoff, contributing to Kitco News; jwyckoff@kitco.com

Editor’s Note: Meet the Kitco News Team at the upcoming Kitco Metals eConference September 12-13, 2010. A not-to-be missed event featuring Ron Paul, Marc Faber and other industry heavyweights. The eConference is free with Pre- Registration www.kitcoeconf.com.

****

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.