Gold has bounced $130 from its panic low of $1322 last Monday evening. We have read the stories about long lines to buy gold at dealers and jewelers in Asia, and there is no doubt that supply of physical coins in North America is tight. However, should the rebound fail between $1450 - $1500 we can chalk up the recent rally as a garden variety snap-back after a major crash:

Click to enlarge

GC_5-hour

The healthiest scenario for gold would be a continued steady "2 steps forward, 1 step back" progression higher in the face of overwhelming bearish sentiment. The market will need to form a broad, healthy base in order to eventually vault above previous support near $1550 which will now act as important resistance.

The good news is that the sentiment (lowest number of gold bulls since at least 2001 according to Hulbert and Sentiment Trader) & market positioning backdrop is highly constructive and we have a major panic low in place at $1322 along with strong signs of aggressive accumulation below $1400. Now we will have to see if dips continue to be bought as price steadily forms a series of higher lows and higher highs.