The world seems much more yellow now. Gold bugs are dancing on the streets as the cash price of gold on the COMEX broke above $500 an ounce on November 29 for the first time since late 1987. Gold subsequently touched $507 on December 2 and looks positive.

 Since bottoming out at the $250 level in 2001, gold has been on a steady tear, as demonstrated by the positive upward sloping price trend. But now in somewhat unfamiliar territory, at least in recent memory, there are questions surfacing regarding whether the $500 resistance level represented a key technical point for gold. The fact is, when the level is broken twice in 18 years and, the last time, prices steadily fell thereafter, you have to wonder if the metal can hold. But the trend is bullish and suggests higher prices ahead.

 The Relative Strength of gold is strong and points to higher prices ahead. But in the near term, given the buying, the gold market is technically overbought, so we could see some selling pressure at $500. A near-term retrenchment is normal and healthy in order for gold to move higher, but, in my view, the key will be the buying support. On the downside, a key support level is the 20-day and 50-day moving averages at $480.60 and $475.10, respectively. If gold can hold at these two moving averages, then we could see additional gains ahead in 2006. Yet a break below these moving averages could see a retrenchment towards the 100-day and 200- day moving averages at $459.20 and $449, respectively.

 Should gold hold, we could see a move towards $511.20, but the increased selling pressure could hamper any strong upside moves in the near term. If you extend the current trendline, a price of $520 to $550 an ounce in the longer term would not be out of the question. The overbought 14-day 80% RSI is at $519.90.

 What I expect to see is a pause as the market decides what to do. We could see some consolidation ahead of us at around the $500 level as the bulls and bears battle it out.