August gold futures surged higher in the overnight action which was supported by reserving weakness of the US dollar. The markets are steadily making corrections from last week’s big move. Daily thrust turned supportive for August gold contract, which could hopefully continue to support the “backing and filling” above the $1,200 per ounce level near term.

The nine-day comparative strength index went up above the 30 % mark and points relatively much higher. The move to oversell above the projected 30 % is regarded as a positive indicator towards the New York trade this week of which the nine-day RSI is at 36 %.

The last bullish turn in the nine-day RSI above the 30 % mark which occurred in the early months of the second quarter and presaged two months of sideways merger and upward correction. The near term key support zones to watch out for remains at the $1,206.90 to $1,179.40 zone. The technical down trend remains relatively intact, although and if the $1,179.40 level were to give way, the gold contract would be vulnerable to further losses, with the next predicted target for the nears at the $1,045 level, the February 2010 monthly low.

The monthly chart for nearby gold futures shows that a market that is overextended and oversold on the losing end. This suggests that the market is due for a period of merging and/or upside correction. The Market is trading way below its lower monthly “Bolinger band”, which demonstrates an overextended market. Furthermore, the nine-month RSI has reached oversold levels and is at its most extreme overselling in over a decade.

Markets can remain oversold for several weeks or even months during strong trends, however it is a strong indication that the bears may be exhausted. Exhaustion could be setting in on the part of the sellers.