While the February gold contract damaged its charts with a downside extension yesterday it quickly rejected that low and recovered in a fashion that suggests some form of key bottom was forged. In fact the range down rejection and recovery came on the highest daily trading volume since November 28th and open interest increased as if buyers saw the dip as a value zone.

Apparently other investors saw yesterday's dip in prices as a bargain hunting opportunity, as holdings in SPDR gold shares jump to a six month high. It is also likely that ever escalating promises of Chinese government support for their economy is providing some tailwinds for gold.

Gold supply news released overnight was mixed with a Russian gold mining concern reducing its 2018 gold production tally by 4%, while Fresnillo reported gold production to be flat and Antofagasta reported an increase in output.

Certainly weakness in the dollar from slack US housing data Tuesday provided support to gold, but there is a thin line between economic uncertainty and a return to deflationary fears. On the other hand, the Dollar early this week has shown some chart vulnerability and obviously US scheduled data to start out the week leaves the Dollar under fundamental liquidation pressure.

In retrospect, the big range down reversal yesterday in gold was forged on strong volume and open interest has continued to rise, and that suggests buyers are willing to buy breaks and this week's low should be seen as a value zone.

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