The chief fundamental driver in the gold market today was the nuclear accords the West has almost signed with Iran. There is a subplot on the international military diplomacy stage, as well: China and Japan.

The settlement that is almost done with Iran will open a release valve in the Middle East/South Asia. It will affect everything from oil prices to military budgets and strategies. Today, it gave another reason for bears to sell gold, especially futures. However, there were a lot of bargain hunters afoot and that helped push gold up.

At 4:15 in New York dollar rally, though, kept gold from gaining a full head of steam.

Gold is up over $5. Silver is up almost a full percent.

The dollar rose on the Iran news but it also rose as the yen fell because the threat of war between Japan, a crucial American ally in the Far East,and China, a nascent adversary, is only a few degrees under the boiling point. The Chinese have established what they call a military security zone near three islands, islands the two countries claim. China wants any country's military operating in the air in the zone to file a flight plan with the Chinese security forces.

Of course, the Chinese point of view right now is that they are in the right and Japan, Vietnam, South Korea and the Philippines have no valid claim on these islands. To make matters worse, China is poking a stick at the United States.

Regardless of U.S. or other Western backing, China has made an enormous blunder that they now will have a hard time standing down from. What they have not accounted for is the advanced technology of Japan's air force, which may be the second most advanced in the world, and Japan's decision to remain a non-aggressive country without sacrificing national dignity or economic efficacy. Switzerland is a similar country. It attacks no one, but it is ready for a highly-sophisticated war should someone bully them too far.

China is becoming feared in eastern Asia - not a good position to be in. The United States is not often feared exactly, although it is clearly disliked in many places. The difference is that the U.S. is disliked because it does not live up to its ideals often enough while China is feared because it does live up to its ideals.

All U.S. equities markets and European markets were up. The Nikkei is up 1.5% while the Shanghai and HSI were off but not drastically. Crude is off on both the Iran news and the stronger dollar.

There are two types of traders milling around the markets at the moment. The first is selling the mini-rallies. The second kind of trader is operating the flip-side of the trades and buying only short, rather sharp rallies. The traders have set quick profit as their goal and are staying out when the movement doesn't look strong enough, each according to the direction he believes gold will go in.

Sometimes you know someone who's about to shoot themselves in the foot - China. You want to tell them to cut the garbage. They don't and something bad happens. China may not think so, but Japan can give them a pretty bad punch in the nose.

As always, wishing you good trading,

Gary S. Wagner- Executive Producer

Market Forecast:

Last week we were looking for lower prices and beginning last Monday we suggested entering short positions in both gold and silver. The early birds did get the worm, but so did those subscribers that waited for our trade alert on Wednesday. We said: "All Traders should be short."

We still see no real reason to change that outlook. However, one thing has changed on a technical basis. Last week we identified a primary support level in gold at 1235. On Thursday of last week we hit that as gold prices touched an intraday low of 1235. In overnight trading we hit a new intraday low as gold prices fell to 1225. Today's video will shed light on that number as we look at this price point historically. Now the fact that it bounced off 1225 and 1235, and closed above both, demands our attention. With that in mind look to trail stops to protect profit in the next day or so

Proper Action

Maintain Gold Short at 1276  stop @ 1294
Maintain Short silver @ 20.47 stop @ 20.90

We will look to tighten stops on both gold and silver early this week (today or Tuesday) or simply take profits *

* strategy will be discussed on todays video

COT LINK  See previous weeks in Historical Commitments of Traders Reports.

Click on bull below for current chart gallery