Is gold bullion coming back to life? Should one read anything into its rise of 3.6% over the past two days to above $900?

The yellow metal solidly outperformed stock markets for the bulk of the equity bear market that commenced in October 2007. However, as investors waved safe havens goodbye and embraced risky assets since early March, gold lost its luster.

Could gold's treading water simply be ascribed to “Armageddon hedging” having dissipated, or is it perhaps the threat of the IMF's plan to sell 403 metric tons of gold once approved by US Congress (unlikely before late in 2009)?

The Financial Times this morning published an article on how dearly gold sales over the years have cost European Central banks after copying the Bank of England's program of large-scale gold sales that commenced in 1999, thereby triggering a phase of “anti-gold” sentiment among European central banks.

The FT's chart of central banks' gold holdings provides an excellent snapshot of the various governments' policies regarding bullion. However, history tells us that when Western central banks sell gold the resultant price decline usually offers a solid buying opportunity. It is also safe to assume that China, which has secretly almost doubled its gold holdings between 2003 and 2008, would be eyeing the West's gold, especially as Beijing has a stated policy of diversifying out of the US dollar and only has 1.6% of its reserves invested in gold (compared with the global average of 10.5%).

Click the image below for a large graphic.

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While gold has moved out of the headlines and investors have become frustrated with its performance, printing presses are running at full speed to produce ever-increasing quantities of fiat money as governments' engineer the greatest asset price reflation in human history, and succeeding at it.

The longer-term fundamental case for the yellow metal is arguably positive, but the shorter-term technical picture is also starting to look interesting. This is explained in some detail by Adam Hewison of INO.com who prepared a short technical analysis of gold's most likely direction and key chart levels. Click here or on the image below to access the video presentation.

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Gold's subdued performance of late may very well be the proverbial lull before the storm as the equity rally starts looking tired and pundits come to the conclusion that the convalescence of the global financial system has not yet run its entire course.