Editor's note: Catch the Latest Happenings with Kitco Video News!

(Kitco News) - Mon Nov 26 - December Comex gold futures pulled back in overnight action ahead of Monday's New York open. The modest retreat is not a surprise in the wake of the big rally move on Friday and a buy the dip mentality has taken over in recent weeks, which should limit downside action.

Friday's hefty gains helped etch several bullish technical signals on the chart, which set the next upside target at a retest of the early October high near the $1,800 per ounce level. Barclay's Capital has a price forecast at $1,810 per ounce in the fourth quarter 2012. The next few weeks could see a strong rally move unfold in the yellow metal.

Fundamental focus in the U.S. will turn quickly from brisk "Black Friday" shopping sales to the so-called fiscal cliff of automatic tax increases and spending cuts set to go into effect at the start of the New Year unless U.S. policymakers act by year-end. Dollar and gold traders will be monitoring headline news closely on this issue.

Technically, last week's surge higher in the gold market confirmed a sloppy type of bottoming pattern, confirming an end to the early October-early November decline. In gold bulls favor, the market has been under the influence of a positive turn in the 9-day relative strength index since early November. That is a widely watched momentum indicator and the tool has been climbing higher from oversold levels for several weeks, and should continue to support upside momentum.

Also, interesting to note, the October sell-off stalled at the 61.8% Fibonacci retracement support level, seen on Figure 1 below. The Nov. 5 action stalled and reversed at 61.8% of the move from the Aug. 17 low to the Oct, 5 high. That is strong support, according to Fibonacci theory and gold market's bullish reaction off that area suggests the entire October sell-off was merely corrective and the market is well positioned to retest the $1,800 level.

Very short-term, downside support lies at $1,743.90 and then $1,739/1,736.00 per ounce. Recent weeks have seen the return of the buy the dip mentality in the gold market. Those price zones should offer support near term. If the market were to take out that latter level at $1,736, however, it would call into question the near term target at $1,800 and additional downside correction could be needed first.

Longer-term, the primary bull market for gold remains intact. A look at longer-term charts reveals a type of measured move pattern off the year-long consolidation pattern that gold has been mired in. If the gold bulls can post a strong and sustained rally above the $1,800 level near term, it would confirm an upside breakout from the sideways pattern, which would project gains as high as the $2,075 per ounce level.

For now, last week's rally is very bullish; however, traders need to monitor action on pullbacks. Initial support lies at $1,743.90 and the $1,736.00 level must hold to keep the near term focus on the $1,800 level.

Daily December Comex Gold Futures chart

By Kira Brecht, contributing to Kitco News. Brecht is managing editor at www.TraderPlanet.com.

<<Back to more Kitco exclusive news